Wall Street: market dive amid rate cut doubts, bank woes, & middle east strife

US equity markets dived on Friday — in a week that saw the pathway toward Fed rate cuts became less certain — earnings reports from major banks disappoint, topped off by a sharp rise in Middle Eastern geopolitical tensions.

Arguably, the effects of the latter will continue to be reversed today after an Iranian missile and drone attack on Israel on Sunday morning, appears sufficient in size to revenge the killing of Iranian military personnel in Syria without being damaging enough to trigger a further escalation at this point.

This will leave traders to focus on Q1 2024 earnings this week from companies including Goldman Sachs, Johnson and Johnson, Bank of America, Morgan Stanley, Netflix (previewed here), Procter and Gamble, and American Express. As well as retail sales data for March and Fed speak from Logan, Daly, Mester, Williams, Bostic, and Goolsbee.

After a third consecutive month of firm CPI data, the rates market has repriced the probability of interest rates in the US remaining higher for longer. Current market pricing shows a first full 25 basis point (bp) rate cut priced for September and a second priced for December.

What is expected from US retail sales (Monday, 15 April at 10.30pm)

In February, retail sales increased by 0.6%, below market expectations, looking for a rise of 0.8%, following a steep 1.1% fall in January. The all-important retail sales control group, which feeds into GDP, was flat in February at 0.0%.

The softer-than-expected rebound in February following January's soft number suggests consumers are pulling back on spending as higher interest rates and stubborn inflation bite into household budgets.

This month, headline retail sales are expected to rise by 0.3% Month over month. The retail control group is expected to also increase by 0.3%. Should the retail sales numbers come in softer than expected, it will increase hopes of a Fed rate cut before September.

US headline retail sales chart

Source: TradingEconomics

S&P 500 technical analysis

Last week, the S&P 500 closed lower for its largest two-week fall since mid-October.

To signal that the correction is complete and reignite the upside towards 5400, the S&P 500 cash needs to hold above support at 5055/5040 and clear resistance at 5265, coming from previous highs.

Aware that if the S&P 500 cash were to see a sustained break of support at 5055/5040, it would warn that a short-term high is likely in place at 5264 and that a deeper pullback towards 4800 is underway.

S&P 500 daily chart

Source: TradingView

Nasdaq technical analysis

Over the past seven weeks, there has been a noticeable flattening out in the Nasdaq's uptrend, well-illustrated by Friday's close of 18,003, within 1 point of the Nasdaq's close of 18,004 on February 22nd.

To signal that the correction is complete and reignite the upside towards 18,750, the Nasdaq cash needs to hold above support at 17,750/00 and clear resistance at 18,400/18,464, coming from previous highs.

Aware that if the Nasdaq were to see a sustained break of support at 17,750/700, it would warn that a short-term high is likely in place at 18,464 and that a deeper pullback towards 17,000 is underway.

Nasdaq daily chart