Where there are earnings reports, there is usually volatility.
We’ve echoed this sentiment for the last few weeks, but by the end of this week, we’ll have more than one-third of the expected earnings reports, which should give us an idea what to expect from the market in the near future.
Earnings have been good because companies have been able to pass along price increases to customers. In turn, customers continue to buy, and demand seems strong. However, inflation still looms, and the speculation of whether or not this trend will continue in Q2 is tripping up the market… which is a familiar story.
This is the exact situation we were in during January’s earnings season. The numbers were good, demand was strong, and the outlook was positive, but investors were worried that inflation would ruin things in the first quarter, so stock prices remained low. It’s a vicious cycle.
Taking all that into account, inflation expectations do seem to be easing a little this week. If commodity prices continue to decline, then expectations for inflation should drop even further, which is why the tech sector is leading the market.
With or without a change in inflation expectations, we think that tech is undervalued. This week, we’ve had our eye on tech companies like Microsoft (NASDAQ:MSFT) announcing better-than-expected earnings.
The question at this point is whether investors will continue to bet against the market fundamentals and keep prices low… or if the market will rally.
Falling Gold Is Good for Stocks
Gold prices are declining again, along with most energy basic commodities. While this might be disconcerting for “gold bugs,” this is actually a good sign for the stock market because of the impact it will have on inflation expectations.
From a technical perspective, a break of support in the gold market should trigger the next rally in the S&P 500.
What’s next for gold and the rest of the market?
Subscribe to our YouTube channel, Learning Markets, to find out, plus submit questions for John and Wade to answer live during our twice-weekly post-market breakdown.
Watch These Levels for Bear-Market Territory
Perhaps it doesn’t seem like it, but this earnings season has been successful in comparison to other recent quarters’ reports. According to Factset, 79% of companies who have reported earnings so far have exceeded expectations, including top tech companies, on which we’re still bullish.
Economic headwinds that continue to threaten the market still exist, of course, including looming inflation and rising rates in the 10-Year Treasury Yield (TNX), which is approaching 3%.
When the TNX is moving higher, it shows that traders believe the economy is growing and that the Federal Open Market Committee (FOMC) may need to raise interest rates to keep inflation in check. The Fed likely will continue raising rates, as it has been for some time.
The S&P 500 (SPX) has found support around 4,165 and is currently bouncing up off this level, but we are primarily focused on support at 4,114.65 — the low set on Feb. 24 — for the long-term performance of the S&P 500 (see below).
If this level can hold, the S&P 500 has a good chance of consolidating between support at 4,114.65 and resistance at 4,650 during the rest of Q2.
What’s all this mean for you? Basically, if the S&P 500 doesn’t hold, we may have to start looking at the possibility of the S&P 500 reaching bear-market territory during 2022.
We’ll keep you updated on its progress.
High Hopes for Microsoft, Apple, Amazon, and Facebook
This earnings season, we have been waiting on four of the large market-cap stocks in the S&P 500 that could potentially lead the rally higher. Last night, Microsoft and Meta Platforms (NASDAQ:FB) did help boost the S&P 500, but Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) may not cooperate today.
Yesterday, we saw that during after-hours trading, Apple dropped down. While the numbers they reported were fantastic (blowing the doors off earnings and revenue expectations) it is their guidance for the current quarter that has everyone concerned. Can these four stocks revive the index and help send the stock market higher? Check out the replay of last night’s livestream to take a closer look at their earnings reports and what they could mean for the market.
Need more insight into what’s happening in the market, including our tailored recommendations? Check out our trading research service Strategic Trader, where our goal is to give readers like you the best opportunities possible in any market condition. It doesn’t matter whether you’re trading options for the very first time or you’re looking for a new way to use options enhance your portfolio — we’ve got you covered. Details here.