Proactive Investors - Investors are bracing for an eventful week, with a mix of earnings reports, retail sales data, and housing numbers on the docket.
However, the specter of geopolitical tensions, particularly in the Middle East, looms large, driving rallies in oil and gold prices and casting a shadow over market sentiment. Last week ended on a tense note as reports of potential hostilities between Iran and Israel surfaced, prompting investors to take cover amid fears of a deepening global crisis. Oil prices surged to their highest levels since October, prompting many investors to sell off equities heading into the weekend.
Moving forward, all eyes remain on the 10-year yield, a critical barometer of market sentiment, Freedom Capital Markets chief global strategist Jay Woods writes in his weekly newsletter. Although the yield has crossed above 4.5% for the first time since November, the broader market has shown resilience, trading approximately 12% higher than during the last instance of similar yields. However, rate-sensitive sectors like small caps, cyclicals, and utilities may experience pullbacks if yields continue to rise.
From a technical standpoint, two key levels in the S&P 500 are being closely monitored: the 50-day moving average and the 5000 level, representing a 5% retracement from recent highs. Despite recent volatility, the market's uptrend remains intact, with dip buyers demonstrating resilience.
“As we kick off the week the big question is - will the dip buyers be back?” Woods asks.
“Friday was the second worst day of 2024. Will this pattern of rallies after drawdowns continue? We did hit the 50-day moving average and bounced. Barring any escalation of tensions in the Middle East over the weekend, we could see this dip buying trend continue.”
This week, financials take center stage, with companies like Bank of America (NYSE:BAC), Morgan Stanley (NYSE:NYSE:MS), and Goldman Sachs (NYSE:GS) reporting earnings.
“So far, the continuation of that breakout has yet to occur despite positive earnings results,” Woods writes. “Now we watch the Financial Sector ETF (XLF) to see if the former resistance level just below $40 can act as new support. A bounce from here should lead to a continuation of this bullish formation.
"A failure to hold and a rally is much less likely over the near term.”
In addition to earnings, attention will be on stocks like Netflix (NASDAQ:NFLX) and Procter & Gamble ahead of their respective earnings announcements. Meanwhile, United Healthcare faces scrutiny following recent news impacting Medicare payment plans.
Economically, retail sales, housing starts, and the Fed Beige Book are among the key events to watch this week.
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