This week, our attention will be on the beginning of second quarter earnings season. Earnings are expected to be up over 60% compared to a year ago. There are also expectations that some sectors of the economy could see their earnings up 200-400% from a year ago when the economy was dealing with the pandemic. Expectations are high, but with high expectations comes the risk of disappointment or worries that we’re seeing peak growth. We are watching what companies say about forward guidance and if the great earnings growth can continue.
It’s not just earnings that we will be focused on this week. The economic data points coming out are also very big. Not only are we are looking at what’s happened in the past, but we are also looking to see if we can keep the current momentum going. Globally, momentum is slowing down. China is having to reverse course and start easing its central bank action. Japan has locked down the Olympics to any spectators and Europe seems to be slowing. However, our indicators and our economy continue to grow. This week, what’s very important to look at is how the Consumer Price Index comes out. That’s going to be a big indicator for inflation since there’s been a lot of talk about inflation pushing prices too high, too fast. Then, at the end of the week, retail sales come out. So, we will have prices early on in the week and then retail sales later in the week that shows the impact of prices potentially on consumers and sales. In the middle of the week, the Fed chairperson, Jerome Powell, will be speaking to Congress on Wednesday and Thursday. He’s usually subdued and very meticulous in what he says to Congress. But, sitting in front of Congress for hours on end, oftentimes we get a little glimpse at some facts and some insight of what the chairperson of the Fed is thinking along with details about the last few Fed meetings and what may have happened. We may get a glimpse of the future Fed policy as a result. We all know what they’ve done, but what are they going to do? That topic is very important. There’s a lot of big data coming out on economics this week and the Fed really pushing on top of earnings. As all of this builds, can the US continue its momentum going into the second half of the year?
We saw volatility spike last week with the S&P 500 closing on Friday at 4,369. That pushes our resistance level to 4,400 and the support level to 4,340. Despite the volatility, we have a 50-day moving average of 4,221 which has continued to rise. As we talked about in the past, the 50-day moving average serves as our base support level. With earning seasons coming up this week and other big economic factors and conditions, we will really be watching the markets, trying to break down certain sectors to see what they tell us.
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