Wall Street Stabilizes Amid Volatility; Key Retail Earnings and Inflation Data in Focus

Last week, stock markets were highly volatile, influenced by a significant drop due to weak U.S. jobs numbers. Despite this volatility, which was fueled by recession fears, Wall Street showed signs of stabilization. U.S. stock futures edged up on Monday, with investors remaining cautious due to the upcoming release of critical inflation data and significant earnings reports from the retail sector.

Starbucks rose 2.58% following reports that activist investor Starboard Value urged the company to enhance its stock price. KeyCorp surged 9.1% after Scotiabank acquired a minority stake in the U.S. regional lender in a $2.8 billion all-stock deal. Hawaiian Electric dropped 14.45% due to concerns about its viability. JetBlue Airways fell nearly 21% after announcing plans to sell $400 million in convertible senior notes. B. Riley Financial plummeted 52% after forecasting a Q2 net loss and suspending its dividend.

The S&P 500 ended last week flat after a partial recovery from a significant sell-off. Factors such as deleveraging, crowding, and poor liquidity likely amplified the downturn. During this period, both stock correlations and volatility sharply increased, with the VIX index hitting an intraday high of 66 on August 5, a level only previously exceeded during the March 2020 sell-off and the 2008 Financial Crisis.

Goldman Sachs strategists noted that historical patterns suggest that stock correlations and implied volatility will gradually return to normal over the next few months. In similar past episodes since 2000, where cyclicals lagged defensives by more than 5 percentage points within a week, there were significant spikes in volatility and correlations, indicating economic growth concerns. Following these scares, both realized correlations and implied volatility declined slowly but remained above pre-scare levels even three months later.

The future direction of the equity market will depend on upcoming data releases that clarify the economic outlook. Key data points include weekly jobless claims, retail sales, Walmart's earnings, and labor components of Federal Reserve surveys. The next jobs report is due on September 6th. While inflation data is expected to play a lesser role unless there are extreme surprises, labor market and consumer data will be particularly important.

If economic fears fade and the market becomes more micro-driven, the recent sell-off could present a buying opportunity for stocks with strong fundamentals at discounted valuations. Historically, implied volatility tends to remain elevated leading up to Election Day, but a focus on the implications of specific policies could increase sector and stock dispersion.

The focus is on the consumer price index inflation data due on Wednesday, expected to show a slight decrease from the previous month. This could boost confidence in easing inflation and provide the Federal Reserve with the flexibility to begin cutting interest rates.

In addition to the CPI, industrial production and retail sales data due later this week will offer further economic insights. Signs of cooling activity could support rate cuts but also raise concerns about slowing economic growth.

The quarterly earnings season is nearing its end, with most companies having already reported their financial results. According to FactSet, of the 91% of S&P 500 companies that have reported Q2 earnings, about 78% have surpassed EPS expectations.

This week, notable reports include those from Home Depot and Cisco Systems. Home Depot and Walmart are among the key retailers set to report, providing insights into consumer spending, a major economic growth driver, especially amid recent weak economic data. Chipmaker Applied Materials is also expected to report.

Data for Technical Analysis (1H) CFD US 500 [S&P 500]

Resistance : 5353.3, 5355.8, 5359.9

Support : 5345.1, 5342.6, 5338.5 

1H Outlook      

Source: TradingView                                                                                

Buy/Long 1 If the support at the price range 5338.1 - 5345.1 is touched, but the support at 5345.1 cannot be broken, the TP may be set around 5355.5 and the SL around 5334.6, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 5353.3 - 5360.3, TP may be set around 5371.0 and SL around 5341.6, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 5353.3 - 5360.3 is touched, but the resistance at 5353.3 cannot be broken, the TP may be set around 5344.8 and the SL around 5363.8, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 5338.1 - 5345.1, TP may be set around 5329.0 and SL around 5356.8, or up to the risk appetite.       

Pivot Points Aug 13, 2024 01:42AM GMT