Week Ahead on Wall Street (SPY) (QQQ): Thanksgiving expected to see markets calm on shortened week

• Equity markets trade mostly higher but calm for past week.
• Thanksgiving week is shortened, so more subdued volatility is expected.
• US Dollar attempts recovery, while oil finally breaks lower.

Last week saw relative calm pervade markets after the surge from the lower than expected CPI print the week before. However, the main themes remained largely in place despite some stumbling blocks. Equity markets consolidated and moved higher as retail earnings showed that consumers continue to spend despite higher prices. There was some concerning data showing a rise in credit card debt and defaults, so this spending may not be of the healthy variety, but that did not stop strong results from Walmart (WMT), The Gap (GPS) and many other retailers. The only black spot was Target (TGT), who missed (excuse the pun).

The Atlanta Fed's GDPNOW tracker continued to pencil in US economic growth of 4% or higher. This kept equities on the front foot although Friday's option expiry saw the S&P 500 largely pinned to 4,000 from gamma dealers. Now that that is behind us, equities could be free to push higher. That still appears to be where the pain trade is. The US Dollar lost ground but consolidated itself and attempted to form a bottom. This was briefly helped by Bullard mid-week who spoke of rates in the range of 5% to 7%. This wobbled equity markets and strengthened the US Dollar, but by the end of the week equities had ignored the 7% at least and are looking increasingly comfortable with 5%. 

Despite Bullard's hawkish comments and some from European Central Bank head Lagarde, inflation expectations have continued to fall following the CPI print. This has supported equities on both sides of the Atlantic with Germany, in particular, having a large spike. The doom and gloom predictions of no gas have been offset by a mild winter in Europe so far. The RINF ETF is a useful way to capture inflation expectations, and it declined again last week, down 4%. This ETF captures the spread between TIPS and US treasuries. 

RINF daily

In terms of sectors, no real surprise to see consumer staples doing well as retail results overall were strong. 

S&P 500 sectors

The bond market continues to price in a recession with ever more certainty as the entire yield curve is now in negative territory. This is the first time this has happened since 1980, and the negative relationship seems to only be deepening.

US 10y yield - 2 year yield

S&P 500 forecast

We can see how the gamma dealers did their job and held the S&P 500 without ever straying too far from 4,000 as last week progressed. Now that options expiry is out of the way, the market might be freer to breathe, but Thanksgiving is likely to see less activity as the week progesses. The pivot is still at 3,946, and then 3,859 remains the last chance for bulls. A break here, and 3,700 seems likely. Resistance is at 4,100 from the 200-day moving average and trendline. A break of 4,100 and a test of the August high at 4,325 seems logical.

SPX daily

Earnings week ahead

Source: Refinitiv

Wall Street week ahead

A quiet week beckons with basically a three-day week in the US. I know really it is four, but seriously who is active the Friday after Thanksgiving? We get the Fed minutes on Wednesday, but I do not expect too many suprises, perhpaps a restating of the hawkish stance.