Equities report: Bears at the wheel?

We tend to note the hesitation by US stock market bulls appears to have opened a window of opportunity for the bears who now appear to be behind the driving wheel. In this report, we are to take a different approach than usual and focus mostly on major fundamental issues that surround the US stock markets and end the report with a technical analysis of a US stock market index for a more rounded view.

Moody’s downgrades 10 regional US banks

The well-known credit rating agency Moody’s on Tuesday, announced that 10 regional lenders would have their credit rating downgraded by one notch, whilst six well known banking giants of which some had aided First Republic bank during their troubles, are now at risk of being downgraded as well. Those lenders are Bank of New York Mellon, U.S Bancorp, State Street and Truist Financial all of whom aided First Republic Bank alongside JP Morgan, Bank of America and others created a $30 billion rescue package to “rescue” First Republic. Given the surprise downgrade, market traders appear to have been put on edge, as the DOW JONES 30, NASDAQ 100 and S&P 500 all recorded declines following Moody’s announcement. In the event that more regional banks are downgraded, we may see further fears from investors who may be worried about a repeat of the Silicon Valley Bank crash back in March. Therefore, in the event of further banking fears emerging, regarding the strength of their balance sheets, we may see that fear translated in the US Equities markets, with the market potentially reacting unfavourably and pushing the equities markets lower.

Mixed US Employment data

Last Friday the US employment data was released, providing a mixed picture for market analysts. On the one hand the Non-Farm Payrolls figure for July came in lower than expected, potentially indicative of a less resilient labour market on a month-on-month basis, with the actual figure coming in at 187k compared to the expected figure of 200k. Furthermore, the Unemployment rate for July ticked downwards, with the actual rate coming at 3.5%, compared to the previous month’s rate of 3.6%. Therefore, the mixed employment data appears to have created some uncertainty in the markets, where on the one hand, the data would indicate that the high interest rates and inflationary pressures appear to be making their way into the labour market. Yet on the other hand the Unemployment rate declining, brings the US closer and closer to full employment which is widely considered to be at the 2% Unemployment rate level. As such market participants may be turning their attention to the US CPI rates for July which are due to be released tomorrow   in an attempt to clarify the current economic situation in the US following the mixed employment data. In the event that the CPI rates accelerate, we may see the US Equities markets moving in a downwards fashion, as it could be interpreted that the FED may have to continue their aggressive interest rate warpath due to persisting inflationary pressures, thus strengthening the greenback which in turn could weaken the US Equities markets due to the increased cost of acquisition of US stocks by foreign investors due to a stronger dollar. On the other hand, should the US CPI rates come in lower than expected, we may see US equities markets moving higher, as the potential of the FED easing on its aggressive rate hiking path, could potentially weaken the greenback. Therefore, US equities could be more accessible and cheaper for foreign investors buying stocks denominated in the greenback.

Earnings reports

In addition, stock traders may still have to navigate through earnings reports which are being released. We make a start with Amazon which beat its expected earnings per share by $0.31 and its revenue came in higher than expected at $134.65B  beating expectations by $3.04B. Furthermore, we note Apples mixed earnings report, where its earnings per share beat expectations by coming in at $1.26, yet their revenue came in lower than expected at $81.80B.Up until our next equities report we note the possible release of Super League Gaming (#SLGG), HomeDepot (#HD), JD (#JD.com), Cisco Systems (#CSCO) and lastly Walmart (#WMT)

التحليل الفني

#US 500 (S&P 500) Daily Chart

Support: 4480 (S1), 4400 (S2), 4270 (S3)

Resistance: 4595 (R1), 4730 (R2), 4820 (R3)

 The S&P500 (US500) seems to have moved lower over the past week but has currently managed to stop the bleeding near the 4480 (S1) support level. We tend to maintain a  bearish outlook which may be maintained in the coming week given also that the RSI indicator below our daily chart, dropping sharply to the 50 figure, implying that the influence of the bulls in the market sentiment may have faded away. However, we should note that there is still an upwards moving trendline that was incepted on the 14^th of March that has yet to be broken. For our bearish outlook to continue, we would like to see the index making a clear break below the 4480 (S1) support level if not also breaking the 4400 (S2) support base, which would coincide with a break below the aforementioned upwards trendline. On the other hand, for a bullish outlook we would like to see a clear break above the 4595 (R1) resistance level, with the next possible target for the bulls being the 4730 (R2) resistance ceiling.  Lastly, in the event that the index fails to break either above or below the 4480 (S1) support level or the 4595 (R1) resistance level ,we may see the index move in a sideways fashion between the aforementioned support and resistance levels.

If you have any general queries or comments relating to this article please send an email directly to our Research team at research_team@ironfx.com

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