Gonet: May 23 market news

Dow +0.03%, S&P 500 +0.01%, Nasdaq -0.30%, Russell 2000 -0.17%, SOX -0.27%, Eurostoxx +0.45%, SMI unchanged.

What a nice bear trap Wall Street set Friday night… It appears to be a one-way trip to the ‘bear market’ taken by the major indices at the end of the European afternoon. Fear is doing its job, the general sentiment has worsened, it has already been 6 straight weeks of decline for the S&P 500 Index (SPX), which is on the verge of posting its seventh weekly negative performance. Everything reverses in the last 30 minutes of trading and the indices manage to close in the green for most of them. But why such a reversal in session? Well… remember that Friday is the day of the three witches, compounding the volatility which was already quite high. A possible explanation for this jump comes from technical analysis. The SPX reached 3810 points at the end of its session, while the 3815 level represents a key support (Fibonnacci retracement), a support that therefore works, the SPX closed at 3901.36 points on Friday evening. Don’t look at the trading volume page, they are starving. No, Friday traders come to buy weakness just as they have become accustomed to selling strength lately. Volatility ends the session flat, the VIX remains around 30, a level that remains elevated.

If we take a closer look at this market, we can see that the breadth (the difference between rising and falling stocks) goes from 95% down an hour before the bell to almost 60% up – a pretty brutal reversal than this one. I’ll pause on this topic for a moment. Last Wednesday, the NYSE (New York Stock Exchange) daily range was more than 90% negative, it was the third time in ten days that this had happened. We are witnessing one of the highest-grossing episodes of the last 60 years. By following the behavior of the market in such a context since 1962, we see that the SPX has been systematically trading higher 6 to 12 months later, except in 2007 and 2008 when the subprime crisis took place. So yes, 6 to 12 months is a long time, especially in the minds of investors with constrained portfolios, but that doesn’t change the rule that imposes patience on anyone looking to succeed in the stock market.

The market continues to worry about actual growth in the United States after the results of supermarkets like Walmart or Target were released, whose activity is slowing and inflation calms the zeal of the sacred American consumer. The bond market is also reacting, sending the US 2-year yield up to 2.62% while the 10-year is moving up to 2.82% this morning. Dollar is gaining ground, traders are pricing in a possible slowdown, EUR/USD is trading at 1.0604 this morning. Oil is in demand, a barrel of WTI Light Crude is trading at $110. Gold broke its resistance of $1835 an ounce and is now trading at $1853.

Focus on the consumer discretionary sector, which fell 1.5% on Friday and succumbed to continued weakness in retail stocks after Ross Stores (ROST -22.5%) reported disappointing results and forecasts. Ross is the latest retailer to point to growing cost pressures, raising concerns about slowing earnings growth and consumer sustainability in this high-cost environment. We have to follow Nike and Adidas in particular today, Chinese sportswear names are down 4-8% this morning. The main reason is the escalation of lockdown measures in major cities such as Tianjin, Sichuan and especially Beijing over the weekend.

Futures show a positive open this morning, we are blowing a bit in the trading rooms after the unexpected recovery at the end of Friday’s session. The dominant question is whether the economy will avoid a recession, which would allow the market to calm down. Optimism also reigned this morning after Joe Biden announced he was considering reviewing the tariffs imposed on China.

Christine Lagarde again signals that the first rate hike is imminent, telling Dutch TV it could come “a few weeks” after net bond purchases ended earlier in the next quarter. She is pushing back the idea of ​​a half-point hike amid concerns about economic expansion.

Davos is back. Business leaders, politicians and central bankers will gather over the next four days for the first in-person WEF in two years. The event could take on a more subdued tone than previous years as a group of Ukrainian officials are expected to speak in the absence of the vodka and caviar-fueled parties usually thrown by Russian oligarchs. Mr. Zelenskiy will deliver the keynote speech today via video. Jane Fraser from Citi and Kristalina Georgieva from the IMF will also speak.

Investors are likely to head into this week nervously as more retailers are set to report results after alarming reports from Target (TGT) and Walmart (WMT). Costco (COST), Best Buy (BBY), Advance Auto Parts (AAP), Nordstrom (JWN), Dick’s Sporting Goods (DKS), and Macy’s (M) are some of the top reports for consumer businesses to keep an eye on. Fed spokesmen are back on track and FOMC minutes will also follow.

The ifo German business climate index for May (10:00 a.m.) and the Chicago Fed Activity Index (2:30 p.m.) are scheduled for today.

AMS-Osram: UBS remains neutral with a price target reduced from CHF 19 to CHF 13. Compagnie Financière Richemont: AlphaValue remains on the buy side with a target reduced from 139 to 136 francs. Goldman Sachs remains on the buy side with a price target reduced from CHF 150 to CHF 146. Kuehne + Nagel: HSBC moves from holding to buying and is targeting CHF 320. Sika: Barclays remains overweight with a price target reduced from CHF 485 to CHF 360. Siemens Energy wants to buy out the minority shares in its subsidiary Siemens Gamesa for EUR 18.05 per share. Broadcom would therefore negotiate the takeover of VMWare Wall Street Journal, for about $50 billion. Apple wants to increase its sourcing outside of China. Tesla could build a battery and electric vehicle manufacturing facility in Indonesia. Margarete Haase takes over the chair of AMS-Osram. Alcon acquires Eysuvis eye drops from Kala Pharmaceuticals.

Tonight and this morning in Asia, global indices are trading uptrend. Tokyo is up 0.98% at the IPO, Hong Kong is down 1.27%, Shanghai is up 0.05% and Seoul is up 0.31%. SPX futures rally 53 points as Europe opens 1.6% higher. The market remains in buy weakness sell strength mode and volatility is still high.

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