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Trade Easier - What to know this week

Stay updated on U.S. stocks with insights into recent market movements, economic data, and expert opinions. Discover the impact of inflation, consumer sentiment, and sector performance on the stock market.

By Alpaca

U.S. stocks experienced slight declines on Friday as traders absorbed new economic data indicating slowing inflation and better-than-expected consumer sentiment. Despite the day's dip, the market wrapped up a robust first half of 2024, marked by significant gains driven by enthusiasm in the AI sector.

Market Overview

Last week the S&P 500 fell 0.41% to close at 5,460.48, while the Nasdaq Composite declined 0.71% to 17,732.60. The Dow Jones Industrial Average dropped 45.20 points, or 0.12%, to 39,118.86. Both the S&P 500 and Nasdaq reached intraday highs earlier in the session before closing lower.

Inflation Update

May's core personal consumption expenditures (PCE) price index, which the Federal Reserve favors as an inflation measure, rose 0.1% month-over-month and 2.6% year-over-year, aligning with expectations. The headline PCE was flat monthly and increased 2.6% annually, suggesting a steady inflation trend.

Consumer Sentiment

The University of Michigan consumer sentiment index for June surpassed expectations, rising to 68.2. This boost in consumer confidence is attributed to improving economic conditions, with the one-year inflation outlook decreasing to 3%.

AI-Driven Market Trends

Mike Dickson from Horizon Investments highlighted the concentration of market gains in AI-driven stocks. This trend underscores the significant role that advancements in AI have played in driving stock market performance, with major contributions from tech giants and chip manufacturers.

Sector Performance

The energy sector emerged as the best performer of the week, up 2.5%. Communication Services also saw gains of over 2%, while Utilities and Materials sectors each declined around 1.3%, dragging the S&P.

Nike Shares Decline

Nike's stock plummeted nearly 20% after the company cut its full-year guidance. This significant drop impacted other stocks in the retail sector, including Foot Locker, which saw a decline of over 2%. This downturn represents Nike's biggest stock drop since 2001.

Economic Data and Outlook

HSBC analysts project a gradual and uneven improvement in inflation, with ongoing pressures in the service sector and rising commodity prices. These factors will likely influence economic policy and market performance in the coming months.

Chip Stocks Performance

Chip stocks, including Nvidia and Arm Holdings, significantly contributed to the Nasdaq's gains. Other notable performers in the semiconductor sector included Micron Technology, Applied Materials, KLA Corporation, and Broadcom, highlighting the strong demand and innovation remaining for AI.

Small Caps Performance

The Russell 2000 index underperformed, down 0.8% in June and over 3% in Q2, with a year-to-date gain of less than 1.5%. In contrast, the S&P 500 saw a gain of over 15%, reflecting a growth disparity between small-cap and large-cap stock performance.

Wall Street Strategists' Outlook

A CNBC survey of Wall Street strategists revealed expectations for the S&P 500 to end the year at 5,500, less than 1% above Thursday's close. This conservative outlook suggests a cautious optimism among market experts.

Economic Calendar

Monday (July 1): Construction Spending, ISM Manufacturing Index
Wednesday (July 3): ADP Employment Change, Continuing Claims, EIA Crude Oil Inventories, EIA Natural Gas Inventories, Factory Orders, FOMC Minutes, Initial Claims, MBA Mortgage Applications Index, Trade Balance
Thursday (July 4): Market Closed - US Holiday (Fourth of July) Friday (July 5): Average Workweek, Average Hourly Earnings, ISM non-Manufacturing Index, Nonfarm Payrolls, Nonfarm Private Payrolls, Unemployment Rate

Stocks to Watch

AI Stocks: Continued strong performance driven by innovation and market demand.
Retail Sector: Increased caution following Nike's guidance cut.
Energy Sector: Sustained gains amid favorable market conditions.

Trade Easier Insights

Play of the Week: $VIX (Volatility S&P 500 Index)

Recent Performance Overview

The Volatility S&P 500 Index ($VIX) is currently at $12.45, having recently bounced off its lower trend level around $11.85. This bounce indicates a potential upward cycle within its typical range, potentially reaching up to $19.63.

  • Current Value: $12.45
  • Lower Trend Level: $11.85
  • Upside Target: $19.63
  • Resistance Level: $14.90

Key Levels and Potential Movements

Identifying critical levels is essential for understanding the potential movements of $VIX:

  1. Current Value:

    • $VIX is sitting at $12.45, indicating a possible upward trend after bouncing off $11.85.
  2. Lower Trend Level:

    • The recent bounce at $11.85 suggests this level is a strong support, potentially marking the beginning of an upward cycle.
  3. Resistance Level:

    • There is notable resistance around $14.90, which could act as a pivot point. If $VIX can break through this level, it may continue to rise towards the $19.63 range.
  4. Upside Target:

    • The potential upside target for $VIX is around $19.63, assuming it breaks through the $14.90 resistance.

Strategy Recommendations

  1. For Long Positions:

    • Consider entering at the current level of $12.45, given the recent bounce off the lower trend.
    • Monitor the $14.90 resistance level as a critical point for potential continuation towards $19.63.
  2. For Risk Management:

    • Keep an eye on the $11.85 support level. A fall below this level might invalidate the upward trend hypothesis.
    • Use the $14.90 level as a key indicator. If $VIX rejects this level, it might indicate a consolidation or a reversal.

Market Considerations

  • Monitor broader market trends and economic news, as these can significantly impact $VIX movements.
  • Be prepared to adjust strategies based on real-time data and market sentiment.

Before making any investment decisions, conducting thorough research and considering consulting with a financial advisor is crucial. This analysis is based on previous price action, which does not indicate future price action.

Conclusion

This week's market movements underscore the sensitivity to inflation data and potential Federal Reserve rate actions. As we enter the second half of the year, close monitoring of economic indicators and corporate earnings will be essential for understanding market trends.

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