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  • Weekly Summary: Hopes for Strong Corporate Profits Keep the Stock Market Afloat

Weekly Summary: Hopes for Strong Corporate Profits Keep the Stock Market Afloat

The S&P 500 broad market index futures demonstrated resilience by only edging lower by 0.2% to 5191 points, despite facing higher-than-expected inflation and rising borrowing costs in the United States. Following a 1.4% decline on Wednesday and Thursday to the support level at 5110-5130, the benchmark managed to recover later in the week.

March's Consumer Price Index (CPI) revealed a 3.5% year-on-year increase, surpassing expectations of 3.4% and marking the highest level since September 2023. This surge in inflation pushed U.S. 10-year Treasuries yields to 4.59%, the highest since November 14, and significantly decreased bets on interest rate cuts by the Federal Reserve (Fed) in June to 16.1%.

Given the substantial borrowing costs observed, there's a historical context to consider. Last November, the S&P 500 index was at 4500-4600 points, suggesting a potential 11.0-12.0% correction for the index. However, the benchmark only experienced a modest 1.2% loss on the news. The Producer Price Index (PPI) provided some relief, as it turned out to be somewhat optimistic compared to CPI, with PPI rising to 2.1% versus a consensus of 2.2%.

Investors have now shifted their attention to the upcoming corporate reporting season, set to commence on Friday. There's a prevailing belief that strong corporate profits will buoy stocks despite the prevailing high borrowing costs. Major players in the U.S. banking sector, such as JPMorgan (JPM), Wells Fargo (WFC), Citigroup (C), and BlackRock (BLK), will be among the first to report. Consensus forecasts anticipate a 3.8% increase in corporate profits for S&P 500 listed companies in Q1 2024.

Technically, the S&P 500 index has surpassed the final upside target zone at 4850-4950 points and entered a period of potential correction opportunities. Therefore, monitoring any reversal patterns that may emerge on the chart is advisable. The existing reversal pattern suggests a standard correction of 5-7%, with potential downside opportunities possibly emerging soon. The market is craving for correction, but when it could start remain unclear. May be it is has already started. If the S&P 500 index drops below 5050 points this scenario would become a primary one. The nearest resistance is at 5230 points, while support is at 5110-5130 points.

Oil prices are testing the resistance at $92.00 per barrel of Brent crude. If it fails to hold prices amid increasing geopolitical tensions in the Middle East it may continue up to the next resistance at $100 per barrel. From a technical standpoint, downward pressure prevails in the market, expected to continue throughout mid-May. Therefore, a breakthrough is unlikely. The nearest support is at $81.00-83.00 per barrel.

Gold prices, having reached mid-term upside targets at $2000-2100 per troy ounce and extreme targets at $2400-2500, established a new all-time high close to the resistance level at $2400 per ounce. A technical period favorable for downside scenarios is almost over. Investors are dragging gold prices up. The nearest support is at $2290-2310.

The currency market continues to experience high volatility. Higher-than-expected inflation data in the United States finally shaped the direction of the market in favour of the Dollar. The EURUSD lost 1.5% to 1.06740. The EURUSD is heading to 1.05000. The nearest downside target is at 1.05500-1.05800. There is a risk of Bank of Japan interventions to support the Yen that may cancel this scenario.