US stock markets are at an inflection point, balancing strong and weak economic indicators that will shape their course. Further complicating market performance are recent reports that inflationary pressures continue to be surprisingly persistent within the US economy. Other analysts argue that mending fences on the US-EU front would go a long way toward restoring the necessary boost.
Investors are looking to the upcoming PCE rates, as well as the first quarter’s GDP estimates being revised shortly. At the same time, investors are parsing every detail of the Fed’s soon-to-be-released minutes for clues about where monetary policy might be headed.
Inflationary Pressures and Market Reaction
According to financial market analysts, continued inflation is a desirable effect on US equity markets. A recent IMFBlog Othering indicates that inflationary pressures have not subsided putting caution in investors. The next PCE deflator rate for April will come out this Friday. Both the core and headline figures are the Federal Reserve’s beloved inflation metric of choice. In this turbulent, rapidly changing economic environment, these important figures would offer tremendous informatory value and serve as a stabilizing force shaping investor expectations.
If the Fed signals that it intends to maintain its current policy for an extended period, equity markets may take a severe blow. Expect even bigger drops in that case. Market participants are very sensitive to indications that the central bank is going to delay holding rates steady longer than expected. This would undoubtedly increase concerns about their impacts on economic development and profitability.
The recent rating downgrade of the US Government by Moody’s has spurred increased concern about just how bad our economy is doing. Investors are particularly sensitive to the potential effect on market confidence and the subsequent creation of a more risk-averse investment climate that such downgrades can inspire.
Monitoring Geopolitical Developments
Unlike inflation worries, positive developments on US-EU fronts would provide welcome relief to skittish markets. Recent threat levies by prior President Donald Trump on EU items had first worried investors. The delay of these tariffs until July 9 has led to a guarded sense of optimism that US-China diplomatic relations and trade talks would thaw.
Analysts believe that any indication of thawing US/EU relations, or mitigation of tariffs, would further improve market sentiment. Adopting a collaborative approach increases the certainty of trade. This support for US equities is magnified when combined with other positive economic data.
One important reason all market observers are closely watching NVIDIA’s next earnings report. They think it will create first round, second round, and third round ripple effects through the entire stock market. A solid show from this technology behemoth could reassure investors’ faith and steer significantly larger market currents.
Technical Analysis and Market Outlook
From a technical standpoint, the S&P 500 looks like it’s running on fumes, staying stuck in drift mode, trapped between well-known levels. The index has been able to even attempt to make its way above the 5980 resistance level (R1), but has found resistance at 5745 (S1). This type of range-bound action shows that investors are sitting on the sidelines looking for the next directional move to build the next leg of market activity.
A bullish outlook would take hold if the index is able to break through the 5980 resistance level. In case this happens, the next major landmark would be the all-time high resistance level at 6140 (R2). On the flip side, an inability to push past this threshold might result in even more consolidation or worse, declines.
The much-awaited revision of Q1 GDP figures makes this time more tricky for investors. In the unlikely event that an upside surprise in GDP growth does emerge, the infrastructure story could soothe market jitters and boost US equities. A major positive surprise in this otherwise gloomy data could deliver the bullish sentiment needed to push through overhead resistance.