April 26, 2019 – Earnings drove the market this week, which, if you consider that people buy equities to participate in the future earnings of corporations, makes a lot of sense.
Of course, the news wasn’t all good, which lead to a bit of a divergence in the major indices, and even more divergence if you drill into different sectors. Software and cloud computing providers were among the big winners this week, powered by Microsoft, Amazon and Facebook, among others.
The companies that make actual things were a bit of a mixed bag, but big losses from 3M and Caterpillar served as a major drag on the Dow. Boeing meanwhile, pulled its forward guidance, but didn’t get punished as anything short of another catastrophe seems like good news for the troubled aerospace giant.
We continue to believe that the market digests earnings on a case-by-case basis and not treating each new report as a message about the overall economy is healthy. Although, we might prefer for there to be some sort of coherent theme that we could put together from the results so far, but outside of big profits from big tech, that hasn’t really happened.
Equally difficult to construct a narrative around is today’s GDP report. This is the first estimate, and it will be revised two more times, but the first read on economic growth is overall positive. The headlines is a 3.2% annualized growth rate, which topped estimates for growth of about 2.3%. Digging into the report reveals that business investment actually slowed during the quarter. Consumer demand increased slightly, but not enough to account for the increase in the headline number.
According to the Commerce Department, a big chunk of the increase was an increase in business inventories, which isn’t necessarily bad, but could be a headwind if demand doesn’t pick up soon as businesses are unlikely to keep making products that aren’t being purchased.
Next week is another big week for earnings. More data makes it possible that some trend will emerge that could provide some momentum to a market that has sort of taken a pause near all-time highs this week.
All told this week, the S&P gained 1.20%, the Nadsaq added 1.85%, and the Dow Jones gained 0.12%.
The S&P 500 continues to push higher. The index flirted with record highs this week, using its 8-day moving average (red line) to push through resistance around the 2,920 level. With the 2,920 level now serving as support (dotted lines), along with help from its 8-day moving average, we could very well see the S&P set new highs next week. Should the index pull back, these is slight support at 2,900 along with support from the 20-day moving average (blue line). There is stronger technical support around 2,860, with various levels of semi-strong support between 2,800 and 2,860.
The Nasdaq reached uncharted levels this week, largely due to strong technology sector earnings early in the week. After setting new highs, the 8,100 level has served as support, keeping the index from pulling back. Should the Nasdaq pull back, it has many strong levels of technical support mixed between 7,900 and 8,100. The Nasdaq will also find support in its 8- and 20-day moving averages.
Dow Jones Industrial Average
The Dow Jones struggled more than the S&P and Nasdaq, especially later in the week. After falling below its 8-day moving average, it was able to find support at the 26,400 level and support from its 20-day moving average. With the convergence of the 20-day moving average at technical support, the Dow could very well bounce back, placing the index within reach of new highs. Should the index fall from here, it will find strong support from the 50-day moving average (green line) and strong technical support at 26,200. There are various levels of semi-strong support between 25,800 and 26,200 to help the Dow if it stumbles.
The Russel 2000 has continued to struggle at the resistance (solid lines) level around 1,580. The index has a major convergence of support beneath it, with its 8, 20, 50, and 200-day moving averages helping to keep the index afloat. Friday, the Russell was able to break through resistance at 1,580, which will hopefully help the index to continue higher. If the Russell can break through 1,600, resistance above will become weaker and more spaced out, allowing the index some room to run.