Market Insights

After a small pullback, stocks could be trying to end the bear market that started a year ago.

The S&P 500 declined the first three sessions of the holiday-shortened week between Friday, January 13, and Friday, January 20. It was down as much as 2.8 percent at midday on Thursday, but rebounded to end the week just 0.6 percent lower. The index also held some potentially important levels. (See “Charting the Markets” below.)

Good news on inflation and budding optimism about quarterly results helped support the market. Wholesale prices fell much more than projected, one week after consumer prices unexpectedly dropped. Other economic reports like retail sales and industrial production surprised to the downside (with negative revisions).

Those data points suggested the economy is cooling enough for the Federal Reserve to slow aggressive rate hikes. Policymakers Christopher Waller and Patrick Harker both endorsed that view last week, favoring a 25-basis point increase at the February 1 meeting.

Earnings season for big Nasdaq companies also began on a positive note. First, Netflix (NFLX) jumped after adding 87 percent more subscribers than expected. Second, job cuts continued as Microsoft (MSFT) and Alphabet (GOOGL) announced 22,000 in combined reductions. Big Tech layoffs, which CNBC tallied over 70,000, create the potential for improved profitability later in the year. That, in turn, may offset anxieties about weaker results last quarter. (Analysts currently see earnings down 4.6 percent, according to FactSet.)

Growth Stocks Rebound

Many big growth stocks that struggled in 2022 because of higher interest rates rebounded last week. That list included Tesla (TSLA), Nvidia (NVDA), ServiceNow (NOW), GOOGL and Match (MTCH).

The energy sector advanced as crude-oil futures (@CL) pushed back above $80. Certain travel-related stocks like Expedia (EXPE) and Marriott (MAR) also rose, along with medical-device makers like ResMed (RMD).

Industrial stocks, utilities and financials were among the biggest decliners. Weak results at Procter & Gamble (PG) weighed on consumer staples.

Charting the Market

The S&P 500 could be at an important crossroads as last year’s bearish momentum collides with improving technicals in recent months.

First, the index tested and held the December 21 high of 3890 for the second straight week. Is old resistance becoming new support?

Second, prices slipped below the 50-day moving average but quickly rebounded. That may suggest the intermediate-term trend is upward. Cboe’s volatility index (VIX), which usually rises when stocks fall, has failed to bounce at 20. Both of these patterns differ from September, when the S&P 500 failed to hold its 50-day MA and the VIX spiked.

Next, the weekly chart has made higher lows in each of the last four weeks.

Finally, the 50-day MA is rising toward the 200-day MA. If they keep converging at their current rate, a so-called “golden cross” could occur around the end of the month. That pattern could also suggest direction is changing.

The narrowing range could be interpreted as a triangle. That may cause some traders to think prices will accelerate if they start moving in either direction.

The Week Ahead

Earnings get more active this week, with about 17 percent of the S&P 500’s members issuing results. There won’t be any Fed speeches because the central bank is preparing for its meeting next week.

Synchrony Financial (SYF) is the main company with earnings today.

General Electric (GE), Johnson & Johnson (JNJ) and Halliburton (HAL) report tomorrow morning. Microsoft (MSFT) follows in the postmarket.

Wednesday morning features crude-oil inventories, along with numbers from Boeing (BA), AT&T (T) and Freeport McMoRan (FCX). Tesla (TSLA), International Business Machines (IBM) and Las Vegas Sands (LVS) are due after the closing bell.

Thursday is the biggest day for economic numbers: gross domestic product, initial jobless claims and durable-goods orders. American Airlines (AAL), Southwest Airlines (LUV) and Intel (INTC) lead the earnings roster.

Friday brings personal income and spending. That release also includes the personal consumption expenditure (PCE), which the Fed sometimes views as an important inflation gauge. American Express (AXP) and Chevron (CVX) issue results as well.