US Market Technicals Ahead (26 July – 30 July 2021)The earnings season is gathering pace as it enters into the busiest phase this week. Investors will be closely watching earnings from tech heavyweights with Apple ($APPL), Facebook ($FB), Microsoft ($MSFT), Alphabet ($GOOGL) and Amazon ($AMZN) are reporting quarterly results.
US Federal Reserve will also be meeting this week, and more details will likely emerge on the tapering discussions that started in June. On the economic data front, the US is releasing the first estimate of Q2 GDP which is expected to be the peak of the post-pandemic recovery. Other data includes durable goods orders, and personal income and outlays.
Here is what you need to know to start your week.
S&P500 (US Market)
All three of the major averages finished at record closing highs last week after the markets tumbled at the start of the week on concerns about the spread of the delta variant of Covid and how it would potentially hinder the economic recovery. The uncertainty briefly sent bond yields lower, and investors jumped into tech stocks. Both bonds and equities rebounded quickly by the end of the week.
The benchmark index $SPX rallied +1.84% (+79.5 points), including an intraweek move of +4.18% from its week low during the week. $SPX is currently back trading above its multi-month long trend channel that was earlier highlighted. Every break out of $SPX trend channel resistance has been met with a rejection (6 times since 2021).
The immediate support to watch for $SPX this week remains at 4,285 level; the 20DMA short term support level.
Fed taper talk
The Fed wraps up its two-day meeting on Wednesday and its statement will be scrutinized for any mention of the timeframe for tapering its asset purchase program, although Chairman Jerome Powell made it clear in his recent testimony to Congress that the U.S. economy still needs the central bank’s full support.
In June, policymakers began debating when to start cutting monthly purchases of $120 billion of Treasuries and mortgage-backed securities.
Powell may indicate that while a discussion on tapering has started, there is still time before officials reach a conclusion on what they will do. Policymakers are expected to highlight the risk from the rapidly spreading Delta variant, which investors worry could derail the economic recovery.
Most analysts expect the Fed to give a clearer indication of its plans for scaling back its quantitative easing program at its annual conference in Jackson Hole, Wyoming, in late August, before a formal announcement on tapering later in the year.
Data dump
Aside from the Fed meeting, investors will get an update on the strength of the U.S. economy with an end-of-month data dump.
Monday sees figures on new home sales, which are expected to hit new highs, followed by durable goods orders and consumer confidence on Tuesday.
The highlight is on Thursday with a first look at second quarter GDP and while expectations have been trimmed back in recent weeks, growth is still expected to be strong at 8.6% annualized. This would mark the recovery of all the lost output caused by the pandemic and could be the peak of the post-pandemic recovery.
Figures on personal income and spending are due Friday, which include the Fed’s rumored favorite measure of inflation – the core personal consumer expenditure price index.
Earnings deluge
U.S. earnings are kicking into high gear and investors will be watching the largest tech names to gauge whether a recent shift away from reflation trade and into growth stocks that led markets for the last decade will continue.
Earnings from Apple ($AAPL) and Alphabet ($GOOGL) on Tuesday, Facebook ($FB) on Wednesday and Amazon ($AMZN) on Thursday could accelerate a shift back into growth.
FAANG stocks – Facebook, Amazon, Apple, Netflix ($NFLX), and Google parent Alphabet – are usually known for delivering stellar stock market returns. But only Facebook and Alphabet have beaten the S&P 500 so far this year as investors piled into financials, energy firms and other companies that should benefit from the post pandemic economic rebound.
