Nasdaq 100 Again at All-Time High
Strong corporate earnings have once again pushed U.S. equity indices to a record high. Nasdaq 100 closed the week at 15,111.79 points, jumping 2.9% compared to previous week. S&P 500 was up 1.9%, closing at 4,411.80 points.
Although economic data is still murky due to volatility and noise, Q2 will probably be historic in terms of earnings growth. About 86% of companies that have published their financial records so far have exceeded analysts’ expectations of revenue and profit across a number of sectors. On the back of stellar digital advertising revenues, technology companies such as Snapchat and Twitter increased their top line by 116% and 74%, respectively.
This upcoming week gives an even better glimpse into the recovery and expansion of corporate America as more technology, industrial, consumer discretionary and energy firms are revealing their results.
In particular, Nasdaq 100 is likely to push higher as companies such as Alphabet, Facebook, Apple, Microsoft, Visa and Amazon are disclosing their financial data. The index looks currently extended on both daily and weekly charts, while the price is touching upper Bollinger Band level. Also, the daily chart signals that the price is 2.5 standard deviations away from the mean, as measured by Keltner channels, and hence a pullback is likely. Strong resistance is probable near 15,170 and 15,280 points, while a pullback might take the index back to 14,850 or 14,660 points, closer to the 8 and 21-day exponential moving averages that have historically offered solid support in a bullish momentum.
U.S. GDP Reported This Week
U.S. equity markets might face headwind next week when U.S. second quarter GDP data gets published. The consensus is expecting a preliminary reading of 8.2% growth, up from 6.4% in Q1. The U.S economy has indeed shown remarkable resilience as witnessed by the labor market’s strong recovery, increased retail spending, and the expansion of the housing and industrial sectors during the first half of the year. Those numbers, however, are showing signs of rolling over. In fact, the Federal Reserve Bank of Atlanta has adjusted their expectations for Q2 expansion to 7.6%, down from 10.5% a mere month ago. Should the consensus be overly optimistic and actual print disappoint by a large margin, the equity markets are likely to be the victims. In particular, the Dow Jones Industrial Average and Russell 2000, which have a higher exposure to American markets, might slide in the event of lower than expected GDP print.
Less Stimulus, Weaker Growth
Although no one can debate that the U.S. has recovered quickly, this expansion has largely been supported by government stimulus and ultra-loose monetary policy. While monetary policy will remain unchanged for the foreseeable future, the fiscal taps have largely run dry with most of the stimulus cheques having been delivered by now. From a consumer balance sheet perspective, this extra money has probably been recorded as savings, loan repayments or consumption. Also, the latest infrastructure bill, which was expected to boost capital spending and investment, is facing a pushback in the Senate. A number of surveys published, such as that by University of Michigan Consumer survey, offer a glimpse into potential consumer behavior in the upcoming quarters. The latest Michigan University survey was a shock in many ways as consumers signaled a clear adversity towards spending money on houses, cars and big ticket durables. These sectors represent a significant chunk of the U.S. economy and, without the support from consumers and the government, the second half of 2021 is likely to be gloomier than currently priced in.
Equity markets benchmark index S&P 500 closed at 4,411.80 points, up 1.9%, while Nasdaq 100 gained 2.9% and settled at 15,111.79 points. Russell 2000, representing small-cap stocks, rose 2.1%. The U.S. dollar, represented by the DXY index, was largely flat, gaining 20 basis points to 92.9. Oil tested 21-week moving average support level but closed the week at $72.06, up 0.88%. Gold moved sideways, shedding 0.57% and closing near 1,801.98 points.
Have a great trading week ahead!