Wall Street: what's next for US equity markets after five weeks of gains?

Bank earnings boost market rally

US stock markets wrapped up last week on a positive note, with both the S&P 500 and Dow Jones hitting new record highs. Over the week, the S&P 500 added 1.11%, the Dow Jones rose 1.21%, and the Nasdaq 100 advanced 1.18%.

The catalyst for Friday's rally was stellar bank earnings reports:

• JP Morgan surged 4.4% to $222.29
• Wells Fargo added 5.61% to $60.99
• The KBW Nasdaq Bank Index finished the week 3.97% higher, reaching its highest level in two and a half years.

Meanwhile, Tesla dived 8.8% to $217.80, as investors reacted negatively to its disappointing Robotaxi event.

Economic indicators and market sentiment

On the economic front, Friday's data showed that the producer price index (PPI) remained flat in September, below expectations of a 0.1% increase. However, revisions to August elevated the annual rate to 1.8%, exceeding expectations of 1.6%.

Airfares and other components of the personal consumption expenditures (PCE) index were hotter than expected.

Elsewhere, the preliminary University of Michigan consumer sentiment index dropped to 68.90 from 70.10, with declining expectations and ongoing election uncertainties weighing on sentiment.

Upcoming earnings and Fed insights

This week, the market will concentrate on earnings reports from Bank of America, Goldman Sachs, Morgan Stanley, Citigroup, and Netflix.

Additionally, speeches from several Federal Reserve (Fed) officials and retail sales data for September will attract interest. Ahead of the November Federal Open Market Committee (FOMC) meeting, the interest rates market is pricing in a 22 basis point (bp) reduction in expected Fed rate cuts, down from 40 bps a few weeks ago.

Retail sales expectations

Date: Thursday, 17 October at 11.30pm AEDT

A month ago, traders were questioning whether the US economy was headed for a recession or a soft landing. Fast-forward to this week, and after a robust jobs report earlier this month, retail sales will be in focus as the market seeks more evidence of a soft landing. If retail sales come in much stronger than expected, the storyline might shift towards a "no landing" scenario.

In August, headline retail sales increased by 0.1% month-on-month (MoM), following an upwardly revised 1.1% surge in July. Retail sales excluding autos also grew by 0.1% MoM in August, after a 0.4% rise in July.

For September, headline retail sales are expected to increase by 0.3%, and the ex-autos measure is anticipated to rise by 0.2%. The retail control group, which contributes to gross domestic product (GDP) calculations, is projected to increase by 0.3% MoM, matching August's growth.

US retail sales ex Autos chart

Nasdaq 100 technical analysis

Last week, the Nasdaq secured a fifth straight week of gains, reaching its highest level since mid-July. If the Nasdaq 100 stays above short-term support and a more critical support area at 19,600/500, we anticipate a test and break of the mid-July 20,690 high before pushing towards 21,500.

A sustained break below the support at 19,600/500, could signal a deeper decline towards support at 18,500/400, which includes the 200-day moving average and the September 18,400 low. Below that, support is expected at 18,000, originating from the uptrend drawn from the December 2022 10,671 low.

Nasdaq 100 cash daily chart

S&P 500 technical analysis

Last week, the S&P 500 also locked in a fifth straight week of gains, setting a new record high. This aligns with our update from 30 September:

"Provided the S&P 500 holds above initial support at 5670/50 and medium-term support at 5600, we look for the rally to extend towards 5800 as the next upside target before reaching 5850."

Looking ahead, as long as the S&P 500 remains above a band of horizontal support, we expect the uptrend to continue, with a target of 5900.

A sustained break below support at 5670/50, combined with bearish relative strength index (RSI) divergence, could indicate a deeper decline towards the September 5402 low. Below that, support is seen at 5277 from the 200-day moving average before the 5119 low of August.

S&P 500 daily chart

• _{Source: TradingView. The figures stated are as of 14 October 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}