Weekly Stock Market Update & SPY Technical Analysis
It was only a few weeks ago that Japan, in coordination with the U.S. Treasury, stepped into the currency market to “save” the Japanese yen against a rapidly strengthening dollar. Now, the U.S. government is dealing with a problem of its own.
Last week, the U.S. Treasury announced that it would more than double purchases of longer term government bonds, increasing buybacks to at least $4 billion per operation. The goal? Help calm a bond market where long term yields have been surging toward levels we haven’t consistently seen in nearly two decades.
The Government is Starting to Blink
We’ve spent the last couple weeks talking about the rise in bond yields and why it matters for stocks. Higher Treasury yields make government bonds increasingly competitive with equities, increase borrowing costs across the economy, make mortgages more expensive, and put additional pressure on high valuation growth stocks.
The Treasury’s announcement initially worked. Bond prices moved higher and yields dropped, giving stocks some temporary relief. But it didn’t last long…Treasury Yields climbed back…showing us that you can intervene in the bond market, but you can’t easily eliminate the reasons investors are demanding higher yields. Those reasons include an enormous U.S. fiscal deficit, government debt above $40 trillion, stubborn inflation concerns, elevated oil prices, and a market that is beginning to question how much debt governments around the world can continue issuing without offering investors a higher return.
The Stock Market is NOT Broken
Despite the fact bond yields are at levels not seen since The Great Financial Crisis of 2008, the stock market continues to hold up surprisingly well. Part of the reason is that the earnings picture looks very different than it did nearly two decades ago. Corporate profits, especially across mega-cap technology and AI related companies, remain strong enough to offset some of the pressure coming from higher interest rates.
We’re also starting to see capital spread beyond just a handful of mega-cap stocks. Healthcare, financials, industrials, energy and other areas have begun attracting more attention, improving market breadth and making the rally less dependent on one sector. Healthcare especially stood out last week as $XLV jumped to a new high thanks to Moderna’s cancer vaccine optimism.
This Week’s Scheduled Events (Top events only)
- Nvidia earnings (Wed)
- PCE Inflation Data (Wed)
- Fed Chair Warsh Speech (Fri)
We’ll share a pre-earnings analysis on Nvidia before the report with the expected move per the option’s market. All other key reports will also be available for review on the terminal with an explanation and the possible impact on the market / specific industries. Will also share my thoughts through our Telegram group.
SPY Technical Analysis
Just look at the chart above…if you know anything about technical analysis, you’d note that this is a TEXTBOOK style retest that SPY is doing right now. The index broke 760 in early August to reach new records, since then, it has pulled back about 2.5% to “retest” that 760 mark. Buyers are basically being tested here. Whether or not they’re willing to defend the 760 level could determine the market’s next major move. If 760 holds and buyers step back in, the recent pullback could simply be a healthy reset before another attempt at record highs. If 760 breaks convincingly, however, the technical picture changes and we’d start looking toward the next major support area below.