• The Fed's hawkish talk dents any hopes of tech sector rebound.
  • Bank earnings generally strong so far but bank stocks fail to rally.
  • Earnings season kicks off strongly next week with Goldman Sachs (GS) and Netflix (NFLX).

Another nervous start to the year as investors had initially looked to weather storms but clouds returned as the week wore on. The Fed turned increasingly hawkish and tech investors turned increasingly nervous but we do not see a direct causation between the two. Unlike many of our friends in the mainstream media. Why? Firstly despite the Fed’s hawkish tone on Thursday yields actually dropped, this should usually have been accommodative for risk equities and the Nasdaq in particular. No instead we turn our attention to the big beasts of the financial markets and land at the top of the pile with the dollar. Many were left perplexed by the move in the dollar as the week wore on. Positioning had been established with the themes of hawkish Fed, doveish ECB, and an outperforming US asset base, all dollar supportive. But looking at the equity performance so far this year and we note Europe has outperformed the US as has the UK. While ECB chief Christine Lagarde is sticking to the inflation is transitory playbook borrowed from Powell, dollar traders are beginning to question this dovishness and are pricing a narrowing of the interest rate spread. German 10-year yields have seen the biggest jump this week among developed markets. 

All this has meant a repricing of risk and risk assets and it is that which led to Thursday's fall. Investors had started the year nervous over risker tech assets. This was slightly abated with a positive start to the week but the risk aversion returned. What remains to be seen is whether it spreads. Bank stocks, so far the favoured sector of the year, are suffering on Friday after some mixed earnings from JPMorgan (JPM), Citigroup (C) and Wells Fargo (WFC). Goldman (GS) could steady the ship on Monday but the sector is already well priced for these earnings. 

Equity fund flows

Not surprisingly the financial sector saw decent inflows last week as retail piles into financial at just the wrong time. We say retail as ETF’s attract a huge amount of retail flows in general. Getting in late just as bank earnings show that it is a long road ahead may hurt a little in the short term but the sector should perform well for the year so all may not be lost. XLF SPDR Financial Sector ETF took in $1.4 billion last week. At least retail traders look to be buying the dip in the Nasdaq space as we surprisingly report that Pro Shares Ultra QQQ ETF (TQQQ) was one of the biggest inflows with $2,2 billion coming in. This is a leveraged Nasdaq play which aims to give three times the performance of the Nasdaq ETF (QQQ). So not only buying the dip but leveraging up to do so. That always works out well right!

S&P 500 (SPY) forecast

Despite the increasing doom and gloom, we remain in a strong uptrend on short, medium and long term time horizons. The most recent series of higher highs and lows remains in place from the October 2020 low but we did identify a bearish divergence in the RSI on the achievement of all-time highs in late December. This bearish divergence is still playing out with the MACD is bearish territory and a declining RSI. Note the triangle formation in the RSI. So prepare for a breakout. 

SPY chart, daily

Nasdaq (QQQ) forecast

The double top is fairly well established now and is a well-known bearish reversal pattern. This coupled with the bearish divergence we saw in the RSI on Dec 28 really should have sent us running for the hills. The target of the double top is $350 which takes us neatly back to support and the low from October 5th. Breaking the massive support trend line will be the key catalyst. 

Nasdaq QQQ chart, daily

Earnings week ahead

Massive slate again next week with Goldman leading the way on Monday. Bank stocks did not respond to earnings beats on Friday with Citi and JPM tanking so can Goldman buck the trend? We forecast a strong beat on top and bottom lines but are less sure of the short-term effect on the stock. Given today's pullback, we are likely to see a decent pop in premarket anyway but follow-through may be difficult. The strong background with IPO activity, M&A and stock buybacks all at record highs should help. Goldman topped the list in 2021 for M&A deals as well as IPO listings so the last quarter will reflect that performance. Netflix (NFLX) kicks off tech earnings season and it reports after the close on Thursday.

Source: Benzinga Pro

Economic releases due

Nothing too dramatic next week in terms of economic data. We get a few regional Fed surveys but that’s about it. Nest week is earnings that will be enough to keep things interesting.

 


Like this article? Help us with some feedback by answering this survey:

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD holds steady below 1.0200 ahead of EU Sentix

EUR/USD holds steady below 1.0200 ahead of EU Sentix

EUR/USD is treading water below 1.0200 in early Europe. Moody’s cut Italy’s credit rating amid political jitters, Investors assess the US NFP-led big Fed rate hike bets. US-China tensions over Taiwan underpin the US dollar’s safe-haven demand. EU Sentix awaited. 

EUR/USD News

GBP/USD advances towards 1.2100 amid cautious optimism

GBP/USD advances towards 1.2100 amid cautious optimism

GBP/USD is edging higher towards 1.2100, underpinned by a steady US dollar amid a cautiously optimistic market mood. Bumper US NFP data ramped up aggressive Fed tightening expectations. UK political woes and a dovish BOE rate hike could cap the pound's upside. 

GBP/USD News

Gold could challenge $1,750, with big Fed rate hike bets back in play

Gold could challenge $1,750, with big Fed rate hike bets back in play

Gold price rejection at $1,795 recalls sellers, with eyes on $1,750 support again. US NFP blowout jacks up 75 bps Sept Fed rate hike bets to around 70%. The US dollar is likely to remain underpinned at the start of the inflation week.

Gold News

If Tezos price clears this significant hurdle, XTZ holders are in for a treat

If Tezos price clears this significant hurdle, XTZ holders are in for a treat

Tezos price shows a steady grind toward its forecasted target. This development comes after a successful breakout from a bullish pattern. 

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures