Breakout or Breakdown? Events This Week Could Set Market Direction

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Stocks face major tests this week as investors brace for inflation data, a potential autoworker strike and the expected introduction of new iPhones.

The S&P 500 fell 1.4 percent in the holiday-shortened week between Friday, September 1, and Friday, September 8. The drop followed two consecutive weekly gains.

The news flow was mostly bearish. Apple (AAPL) fell on reports that China restricted the use of its products. Initial jobless claims and unit labor costs also triggered worries of hawkish policy by the Federal Reserve. However, this week’s items will likely have bigger impacts on sentiment:

  • 1 p.m. ET Tuesday: AAPL’s product event is expected to feature new iPhones. Will that help or hurt the market’s most valuable company?
  • 8:30 a.m. ET Wednesday: The Consumer Price Index (CPI) will provide the first reading of inflation in August.
  • 11:59 p.m. ET Thursday: The United Auto Workers (UAW) contract ends. General Motors (GM), Ford Motor (F) and Stellantis (STLA) could face strikes.
Biggest Gainers in the S&P 500 Last Week
Centene (CNC)+6.8%
Marathon Petroleum (MPC)+6.4%
Valero Energy (VLO)+6.3%
CF Industries (CF)+5.7%
Eli Lilly (LLY)+5.3%
Source: TradeStation Data

The catalysts happen with price charts at potentially important crossroads. Will positive news send the indexes higher into yearend? Or could a bearish break sink the markets into a longer period of consolidation and correction?

Charting the Market

The S&P 500 ended last week at 4457.5. It was a potentially important level because it matched the monthly high from June, which could mean old resistance is new support. Prices also held a 50 percent retracement of the rally between the lows of August 18 and the September 1 high. That could suggest last week’s pullback didn’t invalidate the gains of the previous two weeks.

However the index remained below the 4528 resistance level from July and failed to hold its 50-day moving average. Bears might expect the lower high to be followed by a steeper drop under the August low.

Interest rates are the other big focus — especially with CPI on Wednesday. The 10-year Treasury yield has tested highs from last October but remained below them. Mild inflation could ease worries about more Federal Reserve rate hikes. Sharper inflation could do just the opposite and potentially push borrowing costs to new multiyear highs. That would likely weigh on risk assets like stocks.

S&P 500, daily chart, with key technical events.

Energy Leads Again

Energy was the best-performing sector again last week after crude-oil futures (@CL) reached a 10-month high. Tight inventories continue to lift prices. Most other groups fell, led by industrials and materials. Software companies bucked weakness in the technology sector, partly supported by cybersecurity stocks like Fortinet (FTNT) and Palo Alto Networks (PANW).

Health insurer Centene (CNC) was the biggest gainer in the S&P 500 last week as it snapped back from a 23-month low. Oil refiners Marathon Petroleum (MPC) and Valero Energy (VLO) took the second and third spots, according to TradeStation data.

Airbnb (ABNB) was another noteworthy mover last week. The apartment-sharing stock jumped almost 10 percent on news it would join the S&P 500 on September 18.

Upcoming Events

This week marks the beginning of a busier period in the stock market after the summer. Macro issues like inflation and interest rates come first, with CPI this week and the Fed meeting on Wednesday, September 20. Attention then turns to company-level news. Tesla (TSLA) reports quarterly deliveries in early October, followed by earnings season later in the month. Investors will also monitor developments in Washington with the risk of a potential government shutdown next month.

Biggest Decliners in the S&P 500 Last Week
Organon (OGN)-13%
FMC (FMC)-12%
Align Technology (ALGN)-11%
Seagate Technology (STX)-11%
Las Vegas Sands (LVS)-11%
Source: TradeStation Data

The only noteworthy event today is Oracle (ORCL) earnings after the closing bell.

Tomorrow features the AAPL event at 1 p.m. ET.

The CPI report at 8:30 a.m. ET on Wednesday is likely the most important event of the week. Economists expect headline inflation to increase by 0.6 percent. However the less-volatile core reading is forecast at 0.2 percent month-over-month. Crude oil inventories are due later in the morning.

Semiconductor company Arm could also price its initial public offering, according to Bloomberg. It would start trading the next session under the symbol ARM.

Thursday morning brings initial jobless claims, retail sales and the producer price index (PPI) inflation report. There could also be headlines surrounding the auto industry with a potential strike looming.

Friday is quadruple witching, which sometimes features heavy volumes. Consumer sentiment is also due.

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