Trade on Tuesday was sloppy—selling was persistent, yet not especially intense pre-Fed meeting, notes Jon Markman, editor of Strategic Advantage.
The S&P 500 (SPX) drifted to a loss of 1.2% to close at 3,921. That number should be familiar. It is the 50-day moving average, on the nose.
The weakness sets up an inflection point. Bulls need to hold the 50-day, and put together a rally that takes the benchmark S&P 500 back toward overhead resistance at 4,020. A weaker session on Wednesday will embolden bears. They will make a compelling case for an assault on the June low at 3,640.
After the close on Tuesday bears at first got some ammunition. Both Microsoft (MSFT) and Alphabet (GOOGL) reported quarterly financials that missed expectations. Shares were down at the start of the after-hours session, then shot up briskly, in the +5% area, after traders determined the results contained hidden gems.
Next up is the Federal Reserve’s monthly policy meeting late this afternoon. The Fed is likely to raise rates by 75 basis points and reiterate its commitment to lower inflation through even more rate hikes.
Bears and bears are in a standoff, essentially. The most unexpected result—a big positive session Wednesday—seems quite possible. Time for beleaguered bulls to make their move.
SA TradeView: No current positions. I went into Tuesday looking to buy a decline to 3,920. The index is there. I expect to send an intraday update for new positions Wednesday afternoon; stay tuned.
The Backstory: The Dow (DJI) dropped 0.7% to 31,761.54 and the Nasdaq (IXIC) slumped nearly 1.9% to 11,562.58.
Consumer discretionary, communication services, and technology were among the worst performers. Utilities, healthcare, and real estate sectors were the only gainers.
West Texas Intermediate futures declined 1.6% to $95.20 a barrel.
Breadth favored decliners five-three, and there were 189 new lows vs 48 new highs. The leaders were Centene (CNC), Gaming and Leisure (GLPI), American Campus Communities (ACC), Change Healthcare (CHNG), and Acadia Healthcare (ACHC). That’s a basket of cats and dogs that underlines the extreme level of uncertainty; note the high number of health-related stocks, however.
The dollar index, which measures the greenback's strength against a basket of major currencies, jumped 0.7% to 107.23. The US ten-year yield dropped 1.5 basis points to 2.81%, remaining below the 3.04% yield on two-year government securities.
Walmart (WMT) received reduced price targets from a number of analyst firms, including Morgan Stanley and RBC Capital Markets, after the retailer issued another profit warning for fiscal Q2 and fiscal 2023—its second in about ten weeks—citing negative impacts on consumer spending from rising inflation.
Shares of Walmart fell 7.6% Tuesday to $121.98, the second-worst performer on the S&P 500 and the biggest decliner on the Dow.
In economic news, the Conference Board's Consumer Confidence Index fell to 95.7 in July from a 98.4 reading in June due to declines in both the present situation and expectations readings. The Conference Board said that the data suggest the economy slowed to start Q3 as concerns about inflation and expectations of higher interest rates weighed on consumers.
The International Monetary Fund now expects global economic growth to be 3.2% in 2022, below the 3.6% forecast in its April estimates. It now sees global growth at 2.9% next year, also below the 3.6% previous guidance. The growth forecast for the US economy was lowered to 2.3% for this year and 1% in 2023.
New-home sales slowed to a 590,000 annual rate in June from a downwardly revised 642,000 rate in May, down 17.4% from the 714,000 level in June 2021.
Redbook reported that US same-store retail sales were up 13.3% year-over-year in the week ended July 23, slower than a 14.6% gain in the prior week due to rising inflation, excessive heat in some regions, and the usual July lull in sales.
