Weekly Trader's Outlook

If you read last week's blog you might recall that my primary forecast for this week was "Slightly Bullish" for the first half of the week and "Slightly Bearish" for the back half of the week. My forecast turned out to be wrong as stocks basically did the exact opposite of that. I was anticipating continued bullish momentum perhaps driven by positive trade developments and/or a key earnings report from AI-darling PLTR on Monday, followed by a potential "sell on the news" reaction to Wednesday's Federal Open Market Committee (FOMC) meeting. However, the SPX was on an eight-day win streak heading into this week and stocks underwent some consolidation for the first half of the week. Then, news broke Wednesday evening that the U.S. and the U.K. have established the framework for a trade deal and stocks rallied on the news. Markets also responded positively to mid-week news that U.S. Treasury Secretary Scott Bessent will meet with China's top economic officials this weekend in Switzerland. China currently has the highest tariff/reciprocal tariff rates and remains the key trade deal for the U.S. to negotiate. On Wednesday President Trump said that he won't lower the 145% tariffs on China, but made a social media post earlier today, "80% tariff on China seems right! Up to Scott B." It's unclear what, if any, trade progress will result from this weekend's meeting between Scott Bessent and China, but the anticipation likely sets markets up for some volatility, either higher or lower, on Monday.

At the time of this writing (1:40 p.m. ET), stocks are modestly lower across the board (DJI - 148, SPX - 7, COMP - 28, RUT - 4), as traders' position ahead of what appears to be a highly anticipated meeting between Scott Bessent and Chinese economic officials. Given the recent rally in stocks (SPX + 17% off April 7th low), market participants will want to see some positive trade developments regarding China to help validate recent optimism. If there is no progress, or worse a breakdown in talks, it seems likely that stocks are set-up for a profit taking pullback. I don't believe expectations are that a deal will be announced, but more so that there is evidence of progress and a willingness by both sides to negotiate. From a technical perspective, the SPX and NDX are both hovering below key resistance at their respective 200-day SMAs which makes next week's binary setup more pronounced. If markets like what they hear out of China trade talks, and the SPX/NDX can gap above this resistance level, some technical buying could ensue. Of course, a sell-off from this resistance level puts these indices in a near-term negatively skewed risk/reward setup which could exacerbate selling (more on this in the "Technical Take" section below). Yes, we have some important earnings (WMT for example) and economic reports (Consumer Price Index and Producer Price Index, or CPI/PPI, and Retail Sales) on deck next week, but it seems that the primary market driver continues to be trade. Therefore, my forecast for next week is "Breakout," which I define as a greater than 2.0% move in the SPX, either higher or lower, by next Friday. Perhaps I'm exaggerating the importance of the China trade talks and market expectations aren't as high as I feel they are and we don't get a big move, one way or the other, on Monday.

Other Potential Market-Moving Catalysts:

Economic:

• Monday (5/12): Treasury Budget
• Tuesday (5/13): Consumer Price Index (CPI)
• Wednesday (5/14): EIA Crude Oil Inventories, MBA Mortgage Applications Index
• Thursday (5/15): Business Inventories, Continuing Claims, EIA Natural Gas Inventories, Producer Price Index (PPI), Initial Jobless Claims, Empire State Manufacturing, NAHB Housing Market Index, Philadelphia Fed Index, Retail Sales
• Friday (5/16): Building Permits, Export Prices, Import Prices, Housing Starts, Net Long-Term TIC Flows, University of Michigan Consumer Sentiment (Preliminary)

Earnings:

• Monday (5/12): NRG Energy Inc. (NRG), Monday.com Ltd. (MNDY), Simon Property Group Inc. (SPG), DaVita Inc. (DVA), Zoominfo Technologies Inc. (ZI), Hertz Global Holdings (HTZ)
• Tuesday (5/13): Sea Ltd. (SE), JD.com Inc. (JD), On Holdings AG (ONON), Exelixis Inc. (EXEL), CAE Inc. (CAE), Oklo Inc. (OKLO)
• Wednesday (5/14): Dynatrace Inc. (DT), Cisco Systems Inc. (CSCO), STERIS PLC (STE), Nextracker Inc. (NXT), DXC Technology Co. (DXC), Ibotta Inc. (IBTA)
• Thursday (5/15): Walmart Inc. (WMT), Alibaba Group Holdings Ltd. (BABA), Deere & Co. (DE), NetEase Inc. (NTES), Applied Materials Inc. (AMAT), Take-Two Interactive Systems Inc. (TTWO), CAVA Group Inc. (CAVA)
• Friday (5/16): RBC Bearings Inc. (RBC), Flowers Foods Inc. (FLO)

It was a light week in terms of economic reports, but we did get to hear from Federal Reserve Chairman Jerome Powell at this week's FOMC meeting. While rates were left unchanged as expected, Powell stated that the risks of higher unemployment and inflation have risen, which markets initially reacted negatively towards. Aside from the FOMC meeting, there were a couple of noteworthy inflationary data points from this week's data—the ISM Prices Paid component and Unit Labor Costs. Here's the breakdown from this week's reports:

• FOMC Rate Decision: As expected, the Federal Reserve unanimously voted to maintain the target range for the Fed Funds rate at 4.25-2.50%.
• ISM Services PMI: Increased 0.8% from the prior month to 51.6%, which was above the 50.4% Briefing forecast and marks the 10th consecutive month of expansion (a number above 50 denotes expansion, below 50.0 contraction). Within the report, the Prices Paid index increased 4.2% to 65.1%, which represents the highest reading since January 2023.
• Unit Labor Costs (Preliminary): Increased 5.7%, which was above the 4.3% expected and the largest jump in 2 ½ years.
• Initial Jobless Claims: Decreased 13K to 228K from the prior week, and below the 235K expected. Continuing Claims decreased 29K from last week.to 1.879M.
• The Atlanta Fed's GDPNow "nowcast" for Q1 GDP was revised higher to +2.3% yesterday from +2.2% on May 6th.

Treasury yields saw some lift this week, primarily driven by yesterday's announcement that the U.S. has established a trade framework with the U.K. Compared to last Friday, two-year Treasury yields rose ~4 basis points (3.86% vs. 3.824%), 10-year yields moved up ~3 basis points (4.359% vs. 4.322%) and 30-year yields ticked up ~4 basis points (4.828% vs. 4.789%).

Expectations around potential rate cuts from the Fed eased some this week which was tied to the positive trade developments. Per Bloomberg, expectations for a 25-basis-point cut at the June FOMC meeting dropped to 17% from 37% and total 2025 rate cuts are down to 2.68 from 3.19 (both on a week-over-week basis). 

The Nasdaq 100 index (NDX) is down slightly on the week which to me appears to be some sideways consolidation following the rally over the two prior weeks. However, like I mentioned last week, the index is up against resistance at the 200-day Simple Moving Average (SMA). As you can see by the red arrows in the chart below, the index pulled back from this indicator back in March and it has struggled to push above it over the past week. Therefore, from a near-term technical trading perspective, the index is in a "show me" state, meaning the outlook is cautious until the NDX registers a close or two above the 200-day SMA (currently 20,181).

Intermediate-term technical translation: cautious/slightly bearish

Like the NDX, the S&P 500 index (SPX) encountered resistance at the 200-day SMA back in March. The SPX has rallied ~17% off the April 7th lows and currently is within 2% of this potential resistance level (200 SMA currently 5,748). From a near-term trading perspective, this potentially puts the SPX in a negatively skewed risk/reward set-up. Meaning the potential downside could be greater than the potential upside if the 200-day SMA turns out to be a key technical resistance level. Therefore, I put the SPX in the same category as the NDX.

Near-term technical translation: cautious/slightly bearish

A key cryptocurrency bill, known as the GENIUS Act, failed an early procedural vote yesterday. The GENIUS Act is designed to create regulatory framework for stablecoins and the final vote among senators was 48 to 49, short of the required 60. Some Democrats have shown concerns around President Trump's cryptocurrency ventures, including his recently launched meme coin "$Trump." White House Deputy Press Secretary Anna Kelly said there are no conflicts of interest and that Trump's assets are in a trust managed by his children.

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP) and Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages (SMA). In short, stocks had another up week and market breadth correspondingly continued to improve, currently at one-month highs across the board. On a week-over-week basis, the SPX (white line) breadth moved up to 44.40% from 37.80%, the CCMP (blue line) ticked up to 29.78% from 26.26%, and the the RTY (red line) expanded to 28.77% versus 22.20%.

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average, or new highs vs. new lows.

This Week's Notable 52-week Highs (55 today): Amphenol Corp. (APH - $0.16 to $80.42), Cardinal Health Inc. (CAH + $0.21 to $147.48), Duolingo Inc. (DUOL - $0.43 to $503.14), Elbit Systems Inc. (ESLT - $2.21 to $416.76), NRG Energy Inc. (NRG - $2.41 to $117.93), The Travelers Companies Inc. (TRV - $0.64 to $270.17)

This Week's Notable 52-week Lows (43 today): Conagra Brands Inc. (CAG + $0.14 to $23.36), Energizer Holdings Inc. (ENR - $0.04 to $22.09), Helmerich & Payne Inc. (HP - $0.09 to $18.25), Regeneron Pharmaceuticals Inc. (REGN - $2.18 to $545.49), The Campbell's Company (CPB + $0.07 to $35.65), United Health Group Inc. (UNH - $3.41 to $382.15)