Last week, tariff talks, recession fears, and waning consumer sentiment sent stocks lower. This week, the narrative may have shifted, as investors prepare for a macro-filled week and NVIDIA’s annual GTC developers’ conference.
Retail sales data for February came in slightly lower than expectations but better than January’s number. This, along with Treasury Secretary Scott Bessant’s comments about the necessity of the economy undergoing a detox period, may have eased investor worries. All broader equity indexes closed higher on Monday, marking two solid up days in a row.
Next up, we have home prices and new home sales, an important measure of consumer health. The SPDR S&P Homebuilders ETF (XHB) went through a steep downturn as did the SPDR S&P Retail ETF (XRT). Consumer spending is a major contributor to GDP growth which is why these two charts should be on every inverter’s radar. While both ETFs saw an upside swing on Monday, it’s not enough to change the trend (see chart below).
FIGURE 1. SPDR S&P HOMEBUILDERS ETF AND SPDR S&P RETAIL ETF. Both saw a significant slide in value. The upside swing in the last price bar needs to see a lot more momentum and follow through and a confirmed trend reversal. Chart source: StockCharts.com. For educational purposes.
Both ETFs (XHB in the top panel and XRT in the bottom panel) are trading below their 50-day simple moving average (SMA). Monday’s upside move is significant enough to alert investors that perhaps momentum is starting to change. It could be the start of a reversal, a short-term rally that resumes its downtrend, or the beginning of a sideways move. Regardless, it’s worth monitoring the sectors and specific industry groups to get an idea of the general investor sentiment. The StockCharts MarketCarpets can go a long way in giving a big-picture view of the overall market (see below).
FIGURE 2. IT’S MOSTLY A SEA OF GREEN EXCEPT FOR THE HEAVY-WEIGHT LARGE-CAP STOCKS. There was money flowing into the market, especially in the Real Estate, Energy, and Consumer Staples sectors. Image source: StockCharts.com. For educational purposes.
Money flowed into the Real Estate, Energy, and Consumer Staples sectors, but all 11 S&P sectors closed in the green. The weakest performer was Consumer Discretionary—you can thank the slide in Tesla, Inc. (TSLA) and Amazon.com, Inc. (AMZN) for that.
All Ears on Fed
Perhaps the most important macro-event this week will be the FOMC meeting. Although an interest rate cut isn’t expected, there’s still uncertainty surrounding tariffs. When Federal Reserve Chairman Jerome Powell takes the podium on Wednesday, investors will be listening for clues about economic growth and inflation expectations.
Bond prices are showing signs of rising. The iShares 20+ Year Treasury Bond ETF (TLT), which has been trending higher this year, closed modestly higher. Gold and major cryptocurrencies such as Bitcoin and Ether also closed higher.
The Bottom Line
While it’s encouraging to see the stock market show upside momentum after sliding lower for almost a month, take things one day at a time. If you have some cash sitting on the sidelines, be patient and wait for confirming signals of a trend reversal.
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.