S&P 500 (SPX) closed lower for the second consecutive week as analysts continue to highlight rich valuation and a near-term risk of a market correction. The index fell 0.3% to test the initial support at 4450.
Tech-heavy Nasdaq Composite Index (IXIC) dropped 1.9% after previously losing 2.85% in the first week of August. The index is now approaching key near-term support near 13000.
"Technology is up ~35% on the year, yet its medium-term momentum continues to rollover as many key ETFs have broken significant volume-based support levels. We see meaningful downside risk for tech broadly over the coming weeks," BTIG technical analysts wrote in a note.
On the other hand, the Dow Jones Industrial Average (DJI) rose 0.6% as it continues to hover around 52-week highs. Although the DJI was testing the resistance around 35600, the bulls weren’t able to secure a weekly close near these levels.
Last week’s highlight was the CPI report for July, which saw a year-over-year increase of 3.2%, slightly lower than expectations. The core CPI was reported at 4.7%, also below estimates. Both measures experienced a monthly uptick of 0.2%.
The main contributor to the monthly inflation rise was shelter costs, which climbed by 0.4%, resulting in a 7.7% increase compared to the previous year. Adjusted for inflation, real wages saw a 0.3% monthly increase and a 1.1% year-over-year rise.
“While it would be fair to describe prices as still relatively high in places such as shelter and used cars, we are witnessing a rate of change that is encouraging to consumers, as well as to Federal Reserve policymakers,” said Rick Rieder, chief investment officer of global fixed income at asset management giant BlackRock (NYSE:BLK).
For this week, the highlights include U.S. retail sales for July, which are out on Tuesday. The FOMC minutes are scheduled to be published on Wednesday.
“It’s likely the tone of these minutes is positive, with more confidence on the outlook for growth (remember Powell said the Fed staff is no longer forecasting a recession) and increased conviction that rates are now at a restrictive enough level to push inflation down to the 2% target,” Vital Knowledge analysts said.
On the earnings front, key earnings announcements for the upcoming week include Home Depot (NYSE:HD), Target (NYSE:TGT), Cisco Systems (NASDAQ:CSCO), Walmart (NYSE:WMT), Deere (NYSE:DE), Estee Lauder (NYSE:EL), and Palo Alto Networks (NASDAQ:PANW).
What analysts are saying about U.S. stocks
Vital Knowledge: “The consensus narrative already assumes the Fed is finished hiking, and no one actually wants to see imminent rate cuts (as the only way that’s happening is if growth slowed meaningfully and/or the Fed abandoned its 2% inflation objective and neither of these scenarios would be positive for stocks). The best-case scenario would be for further disinflation and increased certainty out Powell and his colleagues about the Funds Rate already being at its ceiling.”
Oppenheimer: “Long-term positives lead us to believe a period of seasonal weakness should prove temporary, and an opportunity to buy into an ongoing market advance. We believe the S&P 500 becomes increasingly attractive into 4,300, and for a tactical signal, we’re watching for a daily RSI of 40, or a 50% VIX spike.”
Goldman Sachs: “We reiterate our above-consensus 2023 EPS forecast of $224 (1% growth) and our 2024 EPS forecast of $237 (5% growth). Energy explains most of the difference in 2023 EPS. Our forecast reflects a less pessimistic view on the oil market. Sustained high oil prices could lead to upward revisions to consensus EPS.”
BTIG: “Rates remain sticky with 10yr real rates testing the upper end of their year-long range. This should continue to benefit energy which is breaking out with good momentum and relative strength."
Roth MKM: “The U.S. equities markets are experiencing a minor pullback after reaching overbought levels with stretched sentiment heading into the seasonally weak month of August. It is too early to call for anything more than a garden variety correction as major moving averages remain intact.”