Weekly Trader's Outlook

If you read the last week's blog, you might recall that I had a "Slight to Moderately Bearish" forecast for this week, acknowledging the technically overbought status and the higher potential for some profit taking by traders. We did get a modest pullback/consolidation during the first four days of the week, but the SPX is on track to be slightly higher on the week (mostly due to today's 0.70% gain), so my forecast turned out to be wrong. Stocks are moving higher today on two catalysts—renewed hopes for peace talks between the U.S. and Iran and earnings-driven optimism around chips and the artificial intelligence (AI) infrastructure stocks.

Earlier today, U.S. President Trump said he is sending Steve Witkoff and Jared Kushner to Pakistan for a fresh round of peace talks with Iran's Prime Minister this weekend. Additionally, Trump said that Israel and Lebanon have extended their ceasefire for three weeks. This is good news considering the volatile news flow around the Iran conflict earlier this week. The announced "opening" of the Strait hit several snags and Speaker of the Iranian Parliament Mohammad Bagher Ghalibaf, who previously participated in negotiations with the U.S., resigned earlier this week. For reference, WTI crude prices are up ~13% on the week, last seen trading lower by 1.42% to $94.49/barrel.

On the earnings front, Intel is gapping up to all-time highs this morning following blowout earnings on the back of surging CPU demand needed to execute AI tasks. Analog chip maker Texas Instruments also gapped up to a new 52-week high on robust results. The Philadelphia (PHLX) Semiconductor Index (SOX) is up over 4% today to fresh all-time highs and on track for an 18-day win streak. The chip rally has been historic, and it speaks to the strength of the AI buildout theme and the insatiable demand for compute. As for the earnings scorecard, out of the 137 S&P 500 companies that have reported, 68% have beat on the top line and 78% have beat on the bottom line. Q1 revenue growth has been tracking at 9.77% while earnings-per-share (EPS) growth is 25.32% this far.

At the time of this writing (2:45 p.m. ET) stocks are mostly higher, though off the highs of the session (DJI - 128, SPX + 48, $COMP + 365, RUT + 15). Stocks continue to plow higher despite lingering uncertainty around the Iran conflict and the trajectory of oil prices. In my view, the reason investors appear willing to overlook the potential problem because Q1 earnings, along with CEO commentary, have been relatively strong, EPS revisions have been moving higher, and the AI buildout theme is an economic rutter. The massive rally we've seen in chip stocks reminds me of some of the price action seen back in the late 90's. It seems apparent that at some point the spending on AI infrastructure will hit a saturation point, but since we aren't there yet, investors appear to be taking that as a permission slip to bid up chip stocks until then. Next week is going to be a busy earnings week, with plenty of potential market-moving catalysts: a) status of negotiations with Iran; b) mega-cap tech earnings [Apple (AAPL), Amazon (AMZN), Google (GOOGL), Meta (META), Microsoft (MSFT)] on Wednesday/Thursday; and c) an Federal Open Market Committee (FOMC) meeting on Tuesday/Wednesday. Regarding mega-cap tech earnings, not only will results be in focus given the rally in tech, but I think capital expenditure (CapEx) guidance will be key. Given all the read-through on demand from this week's earnings reports from the chip stocks, along with the recent layoff announcements from the likes of META, GOOGL (MSFT offered voluntary retirement to about 7% of its workforce), one would think that CapEx is likely going to be revised higher. But what if it isn't? Would that be perceived as a sign of an incremental softening in demand? And if CapEx is upped, what would be considered a "bullish" amount in regard to the state of the AI trade? Then there's the SOX. As mentioned in the "Technical Take" section below, it's on an 18-day win streak and the Relative Strength Index (RSI) is at a 20-year high—will there be mean reversion pullback next week? I think the potential for a pullback in the SOX on Thursday/Friday of next week is there, especially if CapEx guidance shows any signs of a deceleration in spending. However, the SOX is so overbought that it could see a consolidation pullback in the first half of the week. Therefore, I'm going to provide a "Slightly Bullish" forecast for the first half of the week (I think stocks can move higher even if the SOX consolidates) and "Volatile" for the back half of the week. Honestly, this is not an easy market environment to provide a weekly outlook, not only because of the geopolitical uncertainty, but because of the momentum/animal spirits that is driving the tech/AI trade.

• Monday (April 27): no reports
• Tuesday (April 28): Consumer Confidence, FHFA Housing Price Index, S&P Case-Shiller Home Price Index
• Two-day FOMC meeting starts; policy decision and press conference Wednesday 2:00 ET
• Wednesday (April 29): Advanced International Trade in Goods, Advanced Retail Inventories, Advanced Wholesale Inventories, Building Permits, Durable Goods, EIA Crude Oil Inventories, Housing Starts, MBA Mortgage Applications Index, New Home Sales
• Thursday (April 30): Chicago Purchasing Managers' Index (PMI), Continuing Claims, EIA Natural Gas Inventories, Employment Cost Index, Q1 GDP—Advanced, Initial Claims, PCE Prices, Personal Income, Personal Spending
• Friday (May 1): Construction Spending, ISM Manufacturing Index

• Monday (April 27): Alliance Resource Partners LP (ARLP), Cadence Design Systems Inc. (CDNS), Celestica Inc. (CLS), Cincinnati Financial Corp. (CINF), Domino's Pizza Inc. (DPZ), Easterly Government Properties Inc. (DEA), Lakeland Financial Corp. (LKFN), Nucor Corp. (NUE), Public Storage (PSA), Ventas Inc. (VTR), Verizon Communications Inc. (VZ)
• Tuesday (April 28): American Tower Co. (AMT), Booking Holdings Inc. (BKNG), BP PLC (BP), Coca-Cola Co. (KO), Corning Inc. (GLW), Novartis AG (NVS), S&P Global Inc. (SPGI), Seagate Technology Holdings PLC (STX), Sherwin-Williams Co. (SHW), Spotify Technology SA (SPOT), Starbucks Corp. (SBUX), Vale SA (VALE), United Parcel Services (UPS), Visa Inc. (V), Waste Management Inc. (WM), Welltower Inc. (WELL)
• Wednesday (April 29): Abbvie Inc. (ABBV), Alphabet Inc. (GOOGL), Amazon.com Inc. (AMZN), Amphenol Corp. (APH), Automatic Data Processing (ADP), Banco Santandar SA (SAN), GSK PLC (GSK), General Dynamics Corp. (GD), KLAC Corp. (KLAC), Meta Platforms Inc. (META), Microsoft Corp. (MSFT), Qualcomm Inc. (QCOM), Regeneron Pharmaceuticals Inc. (REGN), UBS Group AG (UBS)
• Thursday (April 30): Agnico-Eagle Mines Ltd. (AEM), Amgen Inc. (AMGN), Apple Inc. (AAPL), Bristol-Myers Squibb Co. (BMY), Caterpillar Inc. (CAT), Conoco Phillips (COP), Eli Lilly & Co. (LLY), Mastercard Inc. (MA), Merck & Co. (MRK), Parker-Hannafin Corp. (PH), SanDisk Corp. (SNDK), Western Digital Corp. (WDC)
• Friday (May 1): AON PLC (AON), Ares Management Corp. (ARES), Chevron Corp. (CVX), Colgate-Palmolive Co. (CL), Dominion Energy Inc. (D), Exxon Mobil Corp. (XOM), Linde PLC (LIN), Natwest Group PLC (NWG), TC Energy Corp. (TRP)

There was a moderate dose of economic data for markets to digest this week, highlighted by the monthly retail sales report and the S&P PMI reports. Retail sales came in above estimates, on both the headline and core basis, but revenue generated from higher energy prices was a driver of the growth. The S&P manufacturing and services PMIs both came in above estimates, but inventory stocking by firms driven by energy-related inflation concerns likely contributed to the strength. Elsewhere, consumer sentiment remained poor, driven by the Iran conflict and higher prices. Here's a breakdown of the reports:

• Retail Sales: Rose 1.7% in March, up from 0.7% in February and above the 1.5% economists were expecting. This represents the strongest advance in a year. The main driver of the jump was a sharp rise in gasoline prices, which sent service station revenue up 15.5%. Core retail sales rose 1.9% in March, which was above the +1.4% estimate.
• S&P Global U.S. Manufacturing PMI: Rose to a 47-month high of 54.0 in April from 52.3 in March, and above the 52.5 economists had expected. Output prices jumped to 59.9 this month, which represents the highest reading since July 2022, up from 58.1 in the prior month.
• S&P Global U.S. Services PMI: Rose to 51.3 in April from 49.8 in March, which was well above the 50.0 economists had expected. Input costs rose the most since December, but companies hiked prices the most in 45 months to help offset the rise in costs.
• University of Michigan Consumer Sentiment - Final: Fell to 49.8 in April from 53.3 in March as the war, and subsequent rise in gas prices weighed on consumer sentiment. The Expectations Index fell to 48.1 from 51.7 in the prior month.
• Pending Home Sales: +1.5% vs. +0.7% est.
• EIA Crude Oil Inventories: +1.93M barrels.
• EIA Natural Gas Inventories: +103 bcf.
• Initial Jobless Claims: Initial applications for U.S. jobless benefits increased 6K from last week to 214K, which was above the 210K economists had expected. Continuing Claims increased 12K from the prior week to a seasonally adjusted 1.821M.
• The Atlanta Fed's GDPNow "nowcast" for Q1 GDP was revised down to 1.2% on Tuesday from 1.3% last Friday.

U.S. Treasury yields followed oil prices higher this week, and the yield curve experienced some flattening. Compared to last Friday, two-year Treasury yields rose ~8 basis points (3.778% vs. 3.70%), 10-year yields moved up ~6 basis points (4.306% vs. 4.246%), while 30-year yields ticked up ~3 basis points (4.914% vs. 4.885%).

Market expectations around the Federal Reserve's monetary policy saw some news driven volatility this week—Kevin Warsh's hearing on Tuesday, inflationary signals from higher oil prices, plus yesterday's PMI reports and today's news that the criminal investigation against Federal Reserve Chair Jerome Powell has been dropped. The net effect per Bloomberg, the probability of a rate cut at the July FOMC meeting is currently 14.5% (from 16%), September is down to 26% (from 33%), October fell to 33% (from 43%) and December now stands at 44% (from 61%).

The S&P 500 index (SPX) is on track to be slightly higher on the week, following three successive 3%+ weekly gains. Last week I noted that I was "near-term cautious" due to the massive run, and the 73 reading on the Relative Strength Index. The SPX saw some consolidation, or digestion of gains for the majority of this week, with today's~70% jump putting the index in the green on the week. Now that there has been some consolidation, the near-term technicals have shifted from cautious to slightly bullish. I only say "slightly bullish" because it's possible some more sideways to slightly lower consolidation is needed given the velocity of the rally. Also worth noting, next week is going to be heavy on the earnings calendar, including reports from the "Mag 7," which will likely drive investor sentiment and the performance on the SPX.

Technical translation: Intermediate and longer-term bullish, near-term slightly bullish

This week's blowout earnings results from the likes of Intel and Texas Instruments helped fuel the unprecedented rally in the PHLX Semiconductor Index (SOX). The SOX is on track to be up for 18 consecutive trading days and is hitting fresh all-time highs this morning. I wasn't able to find another time in history where this index had put together this long of a win streak, and I also couldn't find a higher RSI reading (currently 85) over the last 20 years. I noted this last week and its worth repeating again—RSI is not a timing tool, and a stock or index can always become more overbought before mean reversion kicks in. However, from a near-term trading perspective it is prudent to be cautious given how stretched the SOX is to the upside.

Technical translation: Intermediate and longer-term bullish, near-term cautious

The Bitwise 10 Large Crypto Index is flat week-over-week, with bitcoin up 1% and ether down 5% at the time of writing this on Friday. Over the weekend, KelpDAO, a liquid restaking protocol built on Ethereum and integrated with EigenLayer, suffered a major exploit. Hackers targeted KelpDAO's cross‑chain bridge, exploiting a single‑verifier configuration that authenticated cross‑chain messages. Remote procedure call (RPC) is the interface crypto applications use to read from and write to blockchain nodes. By RPC manipulation with a targeted denial‑of‑service attack, the hackers were able to forge a cross‑chain message that appeared to originate from a legitimate source. This caused the Ethereum mainnet bridge to release rsETH (restaked ether) that had no underlying backing. The unbacked rsETH was then deposited into the Aave lending protocol, where the attackers borrowed real wrapped ether (WETH), leaving Aave with significant bad debt. As a result, emergency freezes were triggered across Aave and several other Ethereum‑based lending protocols to contain contagion risk. Total value locked (TVL) in the Ethereum fell from $321 billion a week ago to $304 billion as of yesterday. The hack and resulting drop in TVL have potentially contributed to weakness in ether's price relative to other cryptocurrencies this past week.

Over the past few months, spot markets have begun to see more buyers emerge following the bear market bottoming in early February. Looking at on-chain data helps put recent activity into perspective. There has been rising activity from corporate treasuries, spot exchange-traded products (ETPs), and digital natives. Meanwhile, balances held at exchanges have been falling, which may indicate seller exhaustion. Leverage, measured by the nominal value of bitcoin futures, bitcoin options and TVL in Ethereum remains relatively low, which may suggest that sentiment is bearish outside of spot markets.

A more thorough analysis of sentiment suggests that positioning is improving. Perpetual futures funding rates still indicate there is more demand for shorts versus longs, and options are showing demand for downside protection, measured by skew. Since the summer there has consistently been more demand for puts relative to calls. That trend appears to be reversing in recent weeks. Finally, the Fear and Greed index is beginning to rise from very low levels. Collectively, all this data supports the notion that investors may be getting bullish on crypto. That said, a fundamental catalyst may be needed to create a sustainable rally in prices.

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP), and Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages (SMA). The S&P, Nasdaq, and Russell 2000 all notched fresh all-time highs this week and while market breadth showed some modest improvement, it has yet to reach the highs hit back in January. This suggests mega-cap and large-cap tech continues to be a main driver of the recent bull run. Compared to last Friday, the SPX (white line) breadth is down slightly to 58.72% from 56.71%, the CCMP (blue line) moved up to 44.18% vs. 44.04%, while the RUT (red line) improved to 62.15% from 59.58% (all week-over-week).

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average, or new highs vs. new lows.

This Week's Notable 52-week Highs (281 today): Applied Materials Inc. (AMAT + $10.03 to $413.94), Bloom Energy Corp. (BE - $4.26 to $233.31), Caterpillar Inc. (CAT - $6.00 to $829.24), Eaton Corp.  (ETN - $0.34 to $424.16), Intel Corp. (INTC + $15.71 to $82.49), Seagate Technologies Holdings Inc. (STX + $4.63 to $592.25)

This Week's Notable 52-week Lows (21 today): Abbott Laboratories Inc. (ABT - $0.87 to $91.61), Accenture PLC (ACN - $2.67 to $175.61), EPAM Systems Inc. (EPAM - $2.18 to $118.58), KBR Inc. (LCID + $0.01 to $6.28), Lululemon Athletica Inc. (LULU + $2.03 to $143.69), Planet Fitness Inc. (PLNT - $0.12 to $69.00)