Yesterday’s better-than-expected economic data inspired the bulls but it may also be a double-edged sword that inspires the Fed hawks and raises the odds of rate increases. That said, the QQQ and SPY charts enjoyed a nice relief rally that held trend and price support levels.  The DIA and IWM also rallied but remained challenged by significant overhead resistance. Today we have a few more earnings, potential market-moving economic reports, and another speech from Jerome Powell to add a dose of uncertainty as to what comes next. 

Asian markets closed mixed with modest gains and losses while Japan continued its breakout rally surging 2.02%.  European markets are breaking their losing streak this morning despite the warnings from the ECB that more rate hikes are on the way to combat inflation.  U.S. futures however seem to be taking an wait and see approach this morning suggesting a mixed flat open ahead of earnings and economic data that could set the direction for the day.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include BB, GIS, FUL, KFY, MU, FIZZ, & WOR.

News & Technicals’

The European Central Bank (ECB) has been tightening its monetary policy in response to the soaring inflation in the eurozone, which reached a record high of 4.9% in November. The ECB raised its key interest rate to 3.5% earlier this month, the fifth increase since July 2022, when it started to lift rates from the historic low of 0%. However, ECB chief economist Philip Lane cautioned that the market should not expect a rapid reversal of the restrictive policy, as the inflation outlook remains uncertain and the economic recovery is uneven. He told CNBC on Tuesday that the timing and speed of policy normalization would depend on the evolution of inflation and growth in the coming months.

Google has faced an internal backlash over a drag show that was scheduled to take place as part of its Pride celebrations. The show, which was organized by a group of LGBTQ+ employees and allies, was met with resistance from some co-workers who signed a petition to cancel the event. The petitioners argued that the drag show was offensive and disrespectful to Christians, and accused Google of discriminating against their religious beliefs, according to CNBC. Google has since decided to distance itself from the show, which is still open to the public, and instead invited its employees to join a social gathering at its offices.

A federal watchdog has warned that a huge amount of Covid aid money may have been lost to fraud. The Small Business Administration (SBA), which administered two major relief programs for small businesses affected by the pandemic, may have disbursed more than $200 billion to fraudulent applicants, according to the inspector general. This would amount to 17% of the total $1.2 trillion that the SBA distributed through the Economic Injury Disaster Loan program and the Paycheck Protection Program. The inspector general blamed the massive fraud on the lack of adequate internal controls and oversight, as the SBA rushed to deliver the loans amid the crisis.

Tuesday’s economic data, durable goods orders, consumer confidence, and new home sales in May were better than expected bringing out the bulls, and raising the odds of future rate increases to reach the Fed’s 2% target.  The S&P 500, Nasdaq, and Russell 2000 all rose by more than 1% while big tech kept up their momentum gaining more than 1.5% on weaker-than-average volume. That said the DIA and IWM remain under significant price resistance while the tech giants almost exclusively keep the SPY and QQQ trends bullish.  Today traders will have a few more earnings reports, trade, inventory, and oil numbers along with more comments from Jerome Powell to keep them guessing. Remember we could see possible end-of-quarter window dressing and/or declining volume as traders shut down early this week to extend the holiday.  Watch for whipsaws around data points with a possible choppy light volume filling as we make our way toward the weekend.

Trade Wisely,

Doug