Daily Stock Market News

SPY rally gathers pace on Tuesday, next test at $415

  • S&P 500 posts impressive gains on Tuesday as rally gathers steam.
  • SPY is set to test the next resistance at $415.
  • $440 remains the extended bear market rally rate.

The S&P 500 (SPY) posted strong gains on Tuesday as the recovery gathered pace. Investors do not have much to fear this week with a reduced slate of earnings data and economic events. Tuesday was notable for poor earnings from Walmart (WMT) and an inline retail sales number. This was enough to soothe investor fears who saw fit to pick up some cheap mega-cap names, while beaten-down retail favorites continued to notch impressive gains. 

SPY News

Investors have slightly been hoodwinked by the recent retail sales data. Yes, the numbers were strong, but price inflation made up most of the gains. In real terms (adjusting for inflation), the sales figures are flat. Add this to the terrible Michigan Consumer Sentiment reading last week, and the picture of consumer demand in the US economy begins to look less positive.

Fed chair Powell stuck to his hawkish narrative on Tuesday and even added that rates can go above neutral. The bond market did though take note and pushed yields higher across the curve, particularly the front end. Equities though ignored this for once and rallied regardless. A strong nod to positioning there, equities rallying despite yields rising and hawkish commentary. This bodes well for a continued bear market rally this week in our view, but we are in a bear market. Make no mistake about it.

We did point out that Walmart was a better reflection of retail sales than the actual government release. Wednesday sees Lowes (LOW) and Target (TGT) also produce negative earnings outlooks again, mentioning the dreaded inflation word. Inflation will bring down consumer spending and so will lead to earnings revisions coming in lower for Q3. Remember: the market is forward-looking. Target was especially bearish as said higher freight costs and low sales of discretionary items hit revenues. Discretionary spending is key to US GDP growth. 

SPY Forecast

$415 is the next resistance to target for the SPY and should be achievable. The market has for now digested all the bad news from Fed rate hikes to a US recession. The positioning has become a little too stretched, and so $415 should fall easily and lead to a test of $435. As with all things, we probably need an overdone move to the upside to get everyone max bullish before the next leg lower. That means maybe breaking $435 up into the low $440s. We do not expect a move higher than that.

SPY stock chart, daily

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