(SPX) fell 1.3% last week after previously recording two consecutive weekly green candles. Nasdaq Composite Index (IXIC) dropped nearly 2% as investors were adding value amid fears that the Federal Reserve will keep higher interest rates for longer.
Dow Jones Industrial Average (DJI) lost 0.8% with the index now trading below an important diagonal trend line that provided support in the past 11 months.
“Weakness in equity markets last week as interest rates climbed higher is likely to persist near term as bullishness is relatively high while the Fed remains shy of its inflation target,” said analysts at Oppenheimer.
Looking forward to this week, the highlight is the CPI report for August which will be published on Wednesday.
“The headline measure is likely to firm due to the rise in gasoline prices during the summer months. Market attention may focus on the monthly core result, where the consensus is 0.2% mom. Relief here may continue to come from used cars and trucks,” Macquarie analysts wrote in a client note.
Retail sales for August will be published on Thursday. Macquire analysts noted that while core sales were strong in July, the reading may create a headwind for August.
The ECB Governing Council meets on Thursday to decide on monetary policy.
On the earnings front, Oracle (NYSE:ORCL) is due to report later on Monday. Adobe (NASDAQ:ADBE) is also set to report on Thursday, together with Lennar (NYSE:LEN).
What analysts are saying about US stocks
Barclays: “The balance of risk/reward argues against further upside driven by multiple expansion, in our view, and the excessively low ERP makes it a difficult proposition to own equities at these levels from an asset allocation perspective. We think equities are likely range-bound into year-end and that consensus estimates for 2024 earnings remain too high.”
Morgan Stanley: “We believe that we are in a late cycle backdrop. More importantly, equity markets are starting to agree based on relative performance under the surface. We recommend sticking with a barbell of defensive growth and Industrials/Energy.”
BTIG: “The new low list is seeing modest expansion, and areas like banks, consumer finance, retail, and restaurants remain challenged. Finally, while we remain cautious on tech broadly, we note that software remains fairly constructive with positive momentum while semis remain vulnerable.”
Goldman Sachs: “We expect ongoing progress towards a soft landing will support S&P 500 earnings and lift the index to our 12-month target of 4700 (+6%). While we believe the balance of risks to our year-end price target of 4500 (+1%) is tilted to the upside, the economic growth and inflation data flow could create a choppy path for equities in the next few months.”
Oppenheimer: “In our view even as the Fed appears to be nearing an end to the current rate hike cycle the stickiness evidenced in food, services, energy and other prices warrants the Fed remaining vigilant along with a potential for one more hike this year and perhaps another next year.”
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