Strong Technical Action Overwhelms Economic Concerns
There are two important economic worries right now, but so far neither of them has been enough to alter the market uptrend.
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Following a better-than-expected earnings report from Netflix NFLX, indexes are set to open higher on Friday morning. Stocks faded on Thursday after a strong open, but all Magnificent Seven (MAGS) name are higher early on Friday, and there appears to be very strong unlying support.
There are two important economic concerns now, but so far, neither of them is sufficient to kill the market uptrend.
The first concern is reflected in a Wall Street Journal headline: “AI Honeymoon is Over for Chip Equipment Industry.” The thrust of the article is that while demand for AI chips, especially those made by Nvidia NVDA, is still booming, other areas of the economy that use chips are slowing. China no longer has the same appetite for chips, PC demand is slowing, and smartphone and auto demand are not as robust.
As earnings season rolls out, we will see how much slowing there is outside of AI but there is also the issue of how much good news has already been built into the AI estimates.
The second concern is that there is a steady erosion in the predictions of Fed rate cuts. The stronger-than-expected retail sales numbers on Thursday sent the 10-year bond yield back over 4%, and the odds of quarter-point rate cuts at the next two Fed meetings have slipped slightly.
There are both subtle hints of a slowing economy in the semiconductors sector but also subtle hints of continued strength in the retail sector. Neither of these hints is sufficient to change the trajectory of the trend, but earnings season has the capacity to shake up the economic narrative.
The good news is that there is quite a bit of positive action in individual stocks, and earnings reports always create some new winners and losers. There should be increased volatility and more opportunities for traders, but if the macro situation shifts, then it could become ugly very fast.
We have a positive open on Friday morning, and housing data will be coming up later.
At the time of publication, Rev Shark had no positions in any securities mentioned.
