Week ahead: expect choppy water, volatility as Fed, struggling earnings boost markets
- Stocks in September may become even more volatile than they have been in the past
- Fed should try to calm nervous investors
- Gains may cause additional jerks
With September already recognized as a month for equities, equities should also enter a period of potential volatility ahead of this week, where the Fed should provide more clarity on its next downsizing moves. In addition, investors are increasingly nervous because “an alarming number of companies have warned that earnings will fall short of expectations when they publish their report in a month”. Noted Bloomberg Saturday.
This could all become the next set of triggers for more downside activity for the, and the, which all closed lower on Friday.
Indices expected from the Fed on tightening plans; Companies aim to soften profit warnings
Our natural tendency is to characterize the next Federal Reserve meeting as “eagerly awaited”. However, we realized that this is exactly how we have identified each of the recent Fed meetings over the past few months.
It is difficult to say how each of the recent Federal Reserve meetings has been “eagerly awaited,” as, after years of quantitative easing, the Fed has signaled its readiness to reduce stimulus and to consider raising interest rates. Both stocks are important after such a long period of easy money, and each announcement in and of itself could be dramatic enough to generate serious waves in financial markets, perhaps especially in September.
With all of this in mind, a significant number of companies have sought to soften the blow by preparing shareholders for the likelihood that earnings could disappoint in future earnings reports. Most of these companies are producers of materials such as PPG Industries (NYSE 🙂 and Sherwin-Williams (NYSE :).
The warnings come amid ongoing supply chain disruptions caused by bottlenecks resulting from COVID restrictions made worse by the growing number of cases of the Delta variant. Although companies in the materials sector only make up a small portion of the broader S&P 500, according to analysts at Bank of America, their results have a high positive correlation with the other 10 SPX sectors.
For starters, these companies are sensitive to economic growth. Their failures are a bad mark for the already fragile recovery as pandemic outbreaks continue. Indeed, both and underperformed on Friday, falling 2.1% and 1.1% respectively.
More worrying however, was the weekly view. Materials fell 3.2% and industrials fell 1.6%. Additionally, on a monthly basis, materials fell 4.4%, followed by the industry’s 3.75% drop. During the three months, materials fell 0.9%, while industrials fell 0.6%. The only other sector in the red during the same periods was.
Materials and Industrials performed poorly, even after a six-month slowdown, each increasing only 3%. Only Energy gave less good results.
On Friday, the S&P 500 index fell 0.9% as quarterly options and futures expired. Nonetheless, the benchmark fell below its 50-day moving average for the first time since June.
The 50 DMA has been support since April 2020, following the infamous stock market bottom of March 2020.
It wasn’t the only landmark in distress, however. Even the more tech-savvy suffered, ironically amid a reversal of the Reflation Trade, as its listed growth stocks should have raised the index. Still, the NASDAQ 100 fell 1.2% on Friday, its worst performance since May. But, unlike the S&P 500, it stayed above its DMA 50.
If that wasn’t enough, there are still some wins to consider as the current season draws to a close. On Monday, homebuilder Lennar (NYSE 🙂 will report. On Tuesday, FedEx (NYSE 🙂 and Adobe (NASDAQ 🙂 released their quarterly results.
While Adobe is likely to return to a work-from-home environment, FedEx (NYSE 🙂 business relies on growing physical commerce. Although consumers have stepped up their home shopping during the shutdowns, the Memphis, Tennessee-based parcel shipper is trying to expand its business by cutting back on its SmartPost parcel service, which shares deliveries with the U.S. Postal Service. Rather, it seeks to take charge of the entire operation, in order to maximize the number of packages it delivers.
Will these adjustments be reflected in FedEx this week? Prior to publication, the stock is showing a bearish signal.
The DMA 50 fell below the DMA 200, triggering a Death Cross, suggesting that the action might be about to overtake.
On Thursday, Costco (NASDAQ :), Nike (NYSE 🙂 and Darden Restaurants (NYSE 🙂 release their earnings reports. Dell Technologies (NYSE 🙂 is hosting an analyst meeting on the same day. It is not clear whether good news from all parties involved will stimulate temperamental stocks, but it is more than likely that negative news will weigh on stocks.
Another key market driver will come on Wednesday, when Federal Reserve Chairman Jerome Powell delivers his post-FOMC opinion. The big question is whether he will be able to appease worried investors without flipping around on a timeline to reduce the Fed’s stimulus?
Powell via a webcast on Friday on “Perspectives on Pandemic Recovery.” If history is any guide, perhaps it is when he looks back on what he said during the FOMC statement.
Last Friday, Treasuries, including the benchmark, fell for a third day, following the two-day massive sell off of the S&P 500.
Yields tested the top of a potential bullish triangle, which would allow rates to test the downtrend line again.
Higher yields boosted the for a second day.
Still, the greenback found resistance at the same level at which price formed the right shoulder of a potential H&S high. This canceled the bullish breakout of a huge double bottom.
, on the other hand, collapsed for the third day, following Treasury bills.
In a mirror image of the dollar, however, the yellow metal found support through a right shoulder towards a possible H&S bottom, which could be a setup for a much larger double bottom.
As energy companies located on the US Gulf Coast after two hurricanes put pressure on supply, fell on Friday.
WTI appears to have finished an evening star, but the absence of the first gap may diminish that possibility. Either way, price broke free from its bearish channel, completing an H&S trough, suggesting higher moves are on the horizon.
The coming week
All times shown are EDT
Public holidays in Japan, China and South Korea
9:30 p.m .: Australia –
Chinese and South Korean markets remain closed for the holidays
8:30 am: United States – : should slide to 1.60oM from 1.630M previously.
11:00 p.m .: Japan – : should stay at -0.10%.
10:00 am: United States – : is expected to drop from 5.99 million to 5.88 million.
10:30 am: United States – : the previous print showed a drop, -6.422M barrels.
2:00 p.m .: United States – Fed decision on interest rates: rate to stay at 0.25%.
3:30 p.m .: Switzerland – : should stay at -0.75%.
4.30 p.m .: United Kingdom – : likely to decline slightly to 59.0 from 60.3.
7:00 am: United Kingdom – : remain stable at 0.10%.
8:30 am: United States – : seen to have decreased to 320K from 332K.
8:30 am: Canada – : is expected to dip to -1.7% after 4.2%.
4:00 p.m .: Germany – : should drop slightly to 98.9 from 99.4.
10:00 am: United States – : go from 708K to 713K.