Inflation Fades, Earnings Beat and Stocks Push Higher

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Stocks keep pushing higher as inflation fades and earnings beat expectations.

The S&P 500 rose 0.8 percent between Friday, April 7, and Friday, April 14. It was the fourth gain in the last five weeks.

Several data points suggested further slowing of inflation, the main drag on sentiment for the last year. First, March’s consumer price index rose less than 5 percent from a year earlier. That was lower than expected and the smallest increase in 22 months.

Second, the annual increase in shelter costs (like rent) rose at the slowest pace since April 2022. That’s potentially important because critics argue that the shelter index lags and therefore overstates inflation. It could also mean that shelter will soon drag CPI lower, letting the Federal Reserve stop raising interest rates.

Biggest Gainers in the S&P 500 Last Week
Bio-Techne (BIO)+13%
Pioneer Natural Resources (PXD)+11%
Enphase Energy (ENPH)+9.4%
JPMorgan Chase (JPM)+8.9%
Citi (C)+8.1%
Source: TradeStation Data

Third, other problem areas like business services and auto prices showed signs of slowing. The producer price index (PPI) revealed a 0.3 percent drop in final demand services — the sharpest contraction since coronavirus hammered the economy in April 2020. Separately, Kelley Blue Book said new cars were selling below the sticker price for the first time in 20 months.

Combined with higher jobless claims and slowing wage growth, the numbers seem to confirm hopes that the post-pandemic inflation is easing.

Financials Rally

Financials were the top-performing sector last week, rebounding from panicked selling in March. The gains followed better-than-expected quarterly results from major firms like JPMorgan Chase (JPM) and Citi (C). Energy also outperformed as crude oil futures (@CL) climbed to their highest level of the year.

Homebuilders also advanced as lower mortgage rates boosted demand. Metals strengthened as the U.S. dollar weakened. Real estate and utilities fared the worst.

Charting the Market

The S&P 500 held the March 6 high of 4078, the highest of three support levels identified last week. Does the index have breakout potential as it challenges a falling trendline?

Some chart watchers may notice that Friday’s last price of 4174 was the highest weekly close since August. They could also observe that Average True Range (ATR) narrowed to its tightest reading since November 2021. Such constricted movement can potentially signal a change of direction.

Finally, the 50-day moving average is above the 100-day MA. The 100-day MA is also above the 200-day MA. That sequence may suggest the longer-term trend is positive because the faster MAs are above the slower MAs. (It was last seen in February 2022 shortly before the bear market started.)

S&P 500, daily chart, with select indicators.

The Week Ahead

This week sees more earnings reports, with over one-tenth of the S&P 500 issuing results. Major housing numbers are also due.

NAHB’s homebuilder sentiment is due this morning

Tuesday brings housing starts and building permits. Bank of America (BAC), Goldman Sachs (GS), Johnson & Johnson (JNJ) and United Airlines (UAL) report in the premarket. Netflix (NFLX) is due after the closing bell.

Biggest Decliners in the S&P 500 Last Week
Catalent (CTLT)-29%
Dish Network (DISH)-11%
Warner Bros. Discovery (WBD)-8.8%
American Airlines (AAL)-8.7%
Progressive (PGR)-7.8%
Source: TradeStation Data

Wednesday’s main items include crude oil inventories, along with numbers from Tesla (TSLA), Morgan Stanley (MS) and Las Vegas Sands (LVS).

Initial jobless claims and existing home sales are on Thursday. American Airlines (AAL), American Express (AXP) and Taiwan Semiconductor (TSM) are some of the big quarterly reports.

Procter & Gamble (PG), Freeport-McMoRan (FCX) and Schlumberger (SLB) conclude the week on Friday morning.

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