• Stocks are set for more gains as earnings season ramps up.
  • SPY rallies as risk returns and yields stabilize.
  • SPY hopes for a recession to boost sentiment!

The stock market has begun to bottom out, according to some analysts, and certainly risk appetites have returned this past week. Earnings season is up and running without too many surprises just yet but with the caveat of the big dogs of tech reporting next week in a make-or-break season. In a curious framing of narrative, equity markets are recovering as hopes for a recession increase. This is a counterintuitive argument, but so much of equity performance has been tied to low rates this past decade that investors are addicted to free money. The sudden shock of rising rates was unfamiliar territory and caused a sharp sell-off, especially in risk-sensitive names that usually include tech and the Nasdaq. Now hopes for a recession have seen 10-year yields penciled lower. Lower rates mean the TINA trade (there is no alternative) would be back on in favor of equities despite a recession.

SPY stock news

So there you have it: a counter-intuitive rally. It is also helping that so far earnings season is relatively upbeat. Tesla (TSLA) last night beat on EPS and was only marginally behind on revenues. There were some caveats, notably margin compression and a Bitcoin sale, but overall with some huge headwinds from China lockdowns and supply issues the growth rate is still impressive. We will update our deep dive Tesla analysis shortly, so keep an eye out. Economically speaking it appears as though the US housing market is about to roll over. No surprise really as house prices had surged to records both in nominal terms and in wage multiples. With rising rates and thus mortgages, it was not surprising that demand would fall just as inventories have been rising in response to rising prices. A classic Econ 101 lesson: rising prices increase supply and dampen demand. 

The question remains though is this a bottom or a bear market rally. Certainly, short covering is outperforming long-only names. This leads us to believe it is early. Short covering ahead of earnings season is there, but there is no correlation yet from long-only buying. 

If earnings season goes some way better than expected, then we would expect the rally to broaden and continue. But earnings estimates are moving in the opposite direction.

This largely explains why the market is so choppy, and when you add in the clouded interest rate outlook, we are definitely in choppy waters.

SPY stock forecast

We have reached our first target and resistance at $395 and now have to fill the gap to $401. After that, it is on to resistance at $415 and a much strong resistance level. Tuesday was a high volume day and market breadth was strong with nearly 90% of NYSE-listed stocks closing higher. 

SPY chart, daily

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

AUD/USD eyes more weakness despite higher-than-expected monthly Retail Sales data

AUD/USD eyes more weakness despite higher-than-expected monthly Retail Sales data

The AUD/USD pair is expected to slip down to near 0.6400 despite the release of the lower-than-expected monthly Retail Sales data. The economic data has landed at 0.6%, higher than the estimates of 0.4%, but lower than the prior release of 1.3%.

AUD/USD News

EUR/USD renews 22-year low as yields propel DXY, focus on ECB vs. Fed drama, energy crisis

EUR/USD renews 22-year low as yields propel DXY, focus on ECB vs. Fed drama, energy crisis

EUR/USD takes offers to refresh multi-year low during seven-day downtrend. US Treasury yields rally to fresh cycle highs amid fears of economic slowdown, hawkish central banks. Energy crisis in Eurozone joins fears of more drama on the Russia-Ukraine issue to keep bears hopeful.

EUR/USD News

Gold turns sideways around $1,630 as investors await Fed Powell’s speech

Gold turns sideways around $1,630 as investors await Fed Powell’s speech

Gold price is displaying a dull performance as investors have sidelined ahead of the speech from Fed chair Jerome Powell. The precious metal is juggling around $1,630.00 after a modest decline from the critical hurdle of $1,640.00.

Gold News

Binance Coin price could shed more than 10% if this trend continues

Binance Coin price could shed more than 10% if this trend continues

Binance Coin price has been on a downtrend for quite some time and has intensified after the recent sell-off in Bitcoin price. Investors need to pay close attention to the BNB’s moves over the last three weeks, which revealed a bearish setup.

Read more

Lower gas prices and favorable views of labor market again boost confidence

Lower gas prices and favorable views of labor market again boost confidence

The Consumer Confidence Index rose to its highest level since April, and now sits more than 12 points higher than where it was just two months ago. Falling gasoline prices and a still-tight labor market are the main reasons we have seen a recent rebound in confidence.

Read more

Forex MAJORS

Cryptocurrencies

Signatures