US markets continue to drift lower, as traders take profits. It is not surprising to see a small pullback here considering the US market has increased over 8% over the last 4 weeks. Earnings season has been strong so far, with over 80% of companies beating on EPS.
What the US markets do next will depend on the rest of the reporting season, and how Biden’s $2 trillion infrastructure bill plays out. Biden aims to approve a package in the coming months that revamp U.S. roads, bridges, airports, broadband, housing, utilities, and invests in job training along with care for elderly and disabled Americans. Republicans have signaled they could support a scaled-back bill based around transportation, broadband, and water systems.
The typical seasonal pattern for the markets is a rise into May and then ‘Sell in May and Go Away’. This means more times than not May is a bearish month. A correction in May is also common to see, especially if we see a strong up move before the pullback.
Locally some of our banks report early May and most Miners and Energy stocks will have quarterly production reporting this month. Expectations are strong for our domestic reporting, with continued recovery expected here as well.
The XJO is expected to open near key support at 6950 this morning. We fell considerably yesterday and factoring in the expected fall on open this morning, perhaps we have priced in much of the retreat of the past couple of U.S sessions. Coupled with the 6950 level, it may be that most of the fall happens on open this morning. Otherwise, considering how much of an extended rally we experienced, the market may expect selling to continue, and pundits not wanting to miss out on profits could drive prices lower.
6950 is a decent level of support, both acting as a previous post-pandemic high, but also support when we consolidated last week. If this level fails, then we look to 6850. This is roughly where the uptrend comes in (at this stage) and is also a key level of support.
News media is reporting that the falls are from a spike in covid cases. What is also likely is that markets were simply ripe for some profit taking and a pull back. This is common and in fact healthy for uptrends.
US shares closed lower again overnight, the second day of selling in a row for the flagship S&P 500 index. Selling was blamed on corporate earnings, with Netflix falling strongly after reporting weaker than expected, perhaps due to employees going back to work around the world. Despite this, the current earnings season is one of the best ever seen when you look at the proportion of companies exceeding their earnings expectations.
There wasn’t a whole heap of US economic data, with the only major report showing a larger than expected build-up in US oil inventories, which led to selling in oil. Some also blamed the selling on virus infections, which continue to rise at a strong pace. Oil & Gas stocks were the weakest performers overnight, while Healthcare and Utilities were the only stocks to close higher on average.