Financial analysts and investors have been relying on the Standard & Poor’s (S&P) 500 Index to measure the health of our economy since the 1920s.
It’s a weighted index comprised of 500 of the leading publicly-traded companies in the U.S. (Names like Apple (AAPL), Microsoft (MSFT), and Amazon (AMZN) top the list.)
When it moves up, stocks overall are doing well. When it moves down, not so much.
The SPDR S&P 500 ETF Trust (SPY) is like an investable version of this classic benchmark, and you’ll find it’s one of my favorite investing tools for tracking market movements.
Since late last week, the SPY ETF has popped by more than 3%, right off of the 200-day moving average (MA):
When a stock, ETF, or even a cryptocurrency’s price moves above its 200-day MA, it typically indicates a bullish trend is forming. But here’s the thing: Sudden moves to the upside might be typical for risk assets (like crypto), but it’s not so typical for an ol’ reliable like our S&P 500.
So even though we anticipated this move, we believe it means the easy money has been made – and the risk-reward ratio for the market has become decidedly riskier.
Expect volatility this week, especially around these key economic events hitting soon that could send stock prices on a rollercoaster…
Volatility-Inducing Events Coming Soon
A highly-anticipated jobs report, inflation figures for February, and interest rate decisions could all have a massive impact on stock prices in a big way.
The chart of implied volatility below gives us a preview of the “events that matter” the most by using future options pricing as a guide:
Here’s what we’re watching:
- Wednesday, Mar. 8: Federal Reserve Chairman Jerome Powell will testify before the Senate’s Federal Open Market Committee (FOMC). Wall Street will be watching for clues as to the FOMC’s mindset regarding further interest rate hikes, which could cause more pain for investors.
- Friday, Mar. 10: The February Nonfarm Payrolls (NFP) report and unemployment rate will be released. Markets are expecting 225,000 NFP jobs added and a stable 3.4% unemployment rate. While this event is likely to move markets significantly, it’s only predicted to be the third biggest event of March.
- Tuesday, Mar. 14: Inflation numbers will be the next big potential market shockwave, with the CPI (Consumer Price Index) set to be released at 8:30 a.m. This will be a biggie – but still not the No. 1 mover for March…
- Wednesday, Mar. 22: This is when the FOMC is scheduled to meet and announce changes to the Fed Funds rate, which is predicted by options markets to be the most volatility-inducing event of the month.
Earnings on Tap
Earnings season is still in full swing, and this week, we’ll see several key reports that could move stocks:
Subscription-based clothing retailer Stitch Fix (SFIX) has disappointed investors for the past year of earnings reports as it struggles to live up to lofty expectations set during the shopping-restricted pandemic days. Demand has slowed considerably for this company, with our proprietary metric Consumer Purchase Intent (PI) Mentions falling 37% from last year:
Toymaker Build-A-Bear (BBW) has moved big on its last four reports. Its smallest move one year ago was a 9.9% hit, and its biggest move was a 34.5% boost during the earnings week last quarter. But discretionary spending has fallen off significantly as Americans are feeling the pinch from rising inflation. Options traders may consider a straddle or strangle play to bet on a larger-than-expected move when it reports earnings on Thursday morning.
Thursday after the market closes, we’ll get reports from retailers Ulta (ULTA) and Gap (GPS), which could both be in for an inventory-meets-declining-demand shockwave. Of the two, GPS seems like the better bearish bet if you consider Abercrombie & Fitch’s (ANF) recent earnings as a warning signal that companies are having a tough time maintaining expected profitability levels.
Keep an eye on these stocks this week – and we’ll be back with more predictive consumer insights tomorrow.
In the meantime, be sure to check out My 1-2-3 Earnings Profit Plan for more on how you can play earnings to your advantage.
Enjoy,
Andy Swan
Co-Founder, Derby City Daily