The US stock markets ended the previous week on a positive note, with both the S&P 500 and Dow Jones Industrial Average reaching new record highs. This surge was driven by strong earnings reports from major banks, which boosted investor confidence.
Notably, JP Morgan's stock rose by 4.4% to $222.29, and Wells Fargo saw a 5.61% increase, closing at $60.99. The KBW Nasdaq Bank Index also reflected this positive sentiment, finishing the week 3.97% higher, its highest level in two and a half years.
On the economic front, the producer price index (PPI) remained flat in September, falling short of expectations for a 0.1% increase. However, revisions to August's figures raised the annual rate to 1.8%, surpassing the anticipated 1.6%. Components of the personal consumption expenditures (PCE) index, particularly airfares, showed stronger-than-expected performance, indicating potential inflationary pressures. The preliminary University of Michigan consumer sentiment index dropped to 68.90 from 70.10, reflecting declining expectations and uncertainties surrounding the upcoming elections, which have weighed on consumer confidence.
Looking ahead, upcoming earnings reports from key financial players, including Bank of America, Goldman Sachs, Morgan Stanley, Citigroup, and Netflix, will provide further insights into the health of the economy and the financial sector. Additionally, speeches from Federal Reserve officials and the release of retail sales data for September will be closely monitored. The interest rates market is currently pricing in a reduction in expected Fed rate cuts, with projections dropping from 40 basis points to 22 basis points in recent weeks.
Retail sales data, set to be released on October 17, will be important in assessing the state of the US economy. A month ago, there were concerns about a potential recession or a soft landing for the economy. However, following a strong jobs report earlier this month, the outlook has become more optimistic. If retail sales for September exceed expectations, it could indicate that the economy is performing better than previously thought.
The Nasdaq 100 has seen five consecutive weeks of gains, reaching its highest level since mid-July. Analysts suggest that if the index maintains its position above short-term support and a critical support area at 19,600/500, it may test and potentially break the mid-July high of 20,690 before aiming for 21,500. On the other hand, a sustained break below the support level at 19,600/500 could indicate a deeper decline, with support expected at 18,500/400, including the 200-day moving average and the September low of 18,400.
Similarly, the S&P 500 has also achieved five straight weeks of gains, setting a new record high. Analysts previously indicated that as long as the S&P 500 remains above initial support at 5670/50 and medium-term support at 5600, the rally is expected to extend towards a target of 5800, eventually reaching 5850. However, a sustained break below the support levels at 5670/50, coupled with bearish relative strength index (RSI) divergence, could signal a deeper decline towards the September low of 5402. Further support is anticipated at 5277, corresponding to the 200-day moving average, before approaching the August low of 5119.
As the markets navigate through these developments, the interplay between corporate earnings, economic indicators, and technical analysis will be crucial in shaping the trajectory of US equity markets in the coming weeks. Investors remain vigilant, seeking to capitalize on opportunities while managing risks in a dynamic economic landscape.