As the S&P 500 comes close to a record week before dropping back down, investors look forward to next week with a full plate of economic data and a Federal Reserve meeting, hoping for reasons whether to drive shares to new highs. The benchmark large-cap index fluctuated with the current record when a rally at the start of the week brought it to its highest its been in almost a year. However, the run cooled down Thursday and Friday, making it the last time the index reached above 2,100 before falling back from the May 21, 2015, closing record of 2,130.82.
Because of this many are talking; Peter Kenny, the senior market strategist at Global Markets Advisory Group in Berkeley Heights, New Jersey, stated that “equities are having a difficult time finding a rationale to punch through to a new high.” Next week will carry important U.S. economic data, including retail sales and inflation. “We need to see something consistently good or bad to move the markets in a direction,” said Peter Costa, president of Empire Executions. “Right now we haven’t got that.” With the S&P 500 closing downwards of 2,100 this week after touching 2,120 previously, chief technical strategist at BTIG in New York – Katie Stockton – believes that the failed attempt of a breakout is setting the index for further declines. “Tested twice, three times makes it more obvious to be a strong resistance level,” Stockton stated. “There’s pent-up selling pressure there.”
Following a poor start to 2016, the S&P 500 has shot up more than 15% since mid-February, assisted by a bounce back in oil prices to over $50 a barrel. On Friday, the S&P ended nearly 35 points shy of the record. However, even if the index eclipses the record next week, many still are not viewing it as an indication towards an increase in stock prices. A proponent of this belief Bruce McCain, chief investment strategist at Key Private Bank in Cleveland states “it’s a reassuring sign, but not a bullish green flag that means we’re going on to major gains in the short term.” Therefore, investors are remaining focused on when the Fed will decide to raise interest rates, although they doubt that the U.S. central bank will act anytime next week.
According to the CME Fedwatch website, traders estimate about a 2 percent likelihood the Fed will raise rates on Wednesday, and 21 percent chance it will do so at the July meeting (Britain’s decision on whether to stay in the European Union could increasingly poke at nerves of investors as the June 23 vote nears prior to July vote). The expectations are significantly due to economic concerns. McCain also stated that retail sales “will give us a little bit more insight into just how much consumers are pulling back, if they are, or whether that employment number was more an aberration in the trend and we still have pretty solid results to keep us moving forward.”
According to Chad Morganlander, portfolio manager at Stifel, Nicolaus & Co in Florham Park, New Jersey, the Brexit vote, along with renewed economic growth concerns for the United States and China, are “throwing a wet blanket on optimism”. “We are recommending investors be underweight equity risk at this point,” Morganlander said.