Does Market Bounce Have Staying Power?

Last week’s trading brought some much-needed relief for investors, as all three major indexes posted their first weekly gain in nearly a month. Just as predicted in last week’s newsletter, headed into the week, markets were giving many signs that they were due for a counter-trend rally, and this played out exactly as expected. Now, as much as investors wish that markets would not move on news headlines but rather on technicals and ultimately fundamentals, of late, it has been clear that this market is moving largely on headlines. This strong week for the market was powered in part by little to no negative news on tariffs. In fact, the main news related to tariffs from this past week was seen as a positive headline, when President Trump said that there was some “flexibility” regarding his upcoming ‘reciprocal tariffs’, and I’ll have more to say about this later. This was a significant positive development because it signaled that once there is some clarity and quiet on the tariff front, this market truly does still have a bias for wanting to move higher.

In addition to finishing in the green on the week, this past week’s trading provided some other encouraging signs for investors moving forward. After the major bullish thrust on the previous Friday, investors received some confirmation as the indexes continued the jump higher on Monday. Following two consecutive positive days, this confirmed that after the S&P 500 declined over 10% peak to trough in the recent correction, plenty of buyers were ready and willing to step back into the market and begin nibbling at stocks. Lastly, this past Friday we saw another bullish surge in markets throughout the trading day where stocks closed near their session highs. All of these occurrences break a recent pattern where almost every time the market began to gain steam and attempt to recover, the bounce would be immediately sold thus driving stock prices back down. Seeing this recent pattern broken is a positive sign for investors moving forward.

The final development from this past week that put some wind back into the sails of stocks came from the Fed. Headed into the week, amid the tariff-related headline frenzy, there had been little discussion about the scheduled FOMC policy meeting. While investors had all but assumed that the FOMC would opt to hold policy rates at current levels, a correct assumption, the real market-moving substance came from the post-meeting presser held by Chair Powell and the release of the Fed’s quarterly SEP. The SEP report includes their policy rate ‘dot plot’ forecast amongst other economic forecasts. The SEP revealed that the FOMC is still penciling in two rate cuts this year and in their other economic projections, while factoring in tariffs, only had a minor increase in unemployment and a minor decrease in U.S. GDP for 2025. This message was reiterated by Chair Powell during his press conference. The market received this supportive news with open arms as it helped to massage some of the fear that has run rampant in recent weeks regarding the new administration’s tariff policy.

Key Events to Watch For

February PCE Inflation
Consumer Confidence
Earnings Reports (CTAS, PAYX, Retail Earnings)
April 2^nd Tariff Announcements

With stocks coming off of their best week in over a month, we are not sure if the current bounce has legs to run further yet or not. We will need to see additional developments to fully trust this move to the upside. This past week, the S&P 500 found strong resistance at 5700 as it was unable to close above this level. We could be in for a period of chop with the index remaining rangebound between 5500-5700 for a few weeks as more uncertainty is resolved. However, any close above the 5700 level will be seen as a bullish sign. In the week to come, there are plenty of factors that could help to provide the next market moving catalyst. The new economic data expected this week will primarily revolve around inflation and the current sentiment of the U.S. consumer. After recent inflation reports showed some positive developments, investors will be eager to see confirmation of this on Friday when the PCE inflation report for February is released. The expectation is that PCE in February will have increased by 0.3%, in line with the previous month. Investors will be hoping for an in line or downside surprise. Before this report is released, earlier in the week on Tuesday morning, investors will get updated soft data on the U.S. consumer. On Tuesday, the March Consumer Confidence number will be published by the Conference Board. This index has been declining and has missed analysts’ expectations since November. As with most soft data, arguably, there is a good deal of politics associated with this number and can likely explain the post-election trend. Regardless, as fears mount about the U.S. consumer beginning to pullback on consumption, this report will be watched closely.

At this point, the vast majority of market-significant Q4 earnings reports are behind us and it was a strong reporting season with 75% of S&P 500 companies posting EPS beats. With that in mind, there are a handful of reports this week that don’t necessarily carry a huge weight for the market, but due to the nature of the companies, their results and guidance could provide some important read-throughs about the broader economy in the current quarter. A few of the companies expected to report this week are Cintas Corp., & Paychex, Inc. Each of these companies provide services to businesses of all sizes from small to large. Each will have a good idea of how businesses are fairing in the current quarter, and their guidance should provide some important insights. Additionally, there are a handful of well-known retail companies including Lululemon Athletica Inc., & Dollar Tree, Inc. that are set to report their earnings this week. Between these companies, their consumer bases cover essentially the entire income scale, so their results and guidance should provide some clarity on what consumers across the income scale are ‘actually doing’ with their dollars, as opposed to just how they ‘feel’. These reports will be parsed closely by investors for precisely this reason, to see if any of the indications from the soft data are beginning to cross the barrier into the hard data.

Our last point to highlight for this coming week is this. Over the next week and a half, investors will likely be positioning themselves for April 2^nd, the date on which President Trump has announced that the “study of reciprocal tariffs” will conclude, and then broad new reciprocal tariff policy will be enacted (probably). There is still a great deal of uncertainty regarding exactly what form these reciprocal tariffs will take and frankly if they will even be enacted on some of our trading partners or instead continue to be delayed and used more as a continued threat. Regardless, this date has been on the calendar for over a month and now that we are only a week and a half out, given the current uncertainty of what may come, expect that this could translate to some further volatility during this period until the dust settles. Now, there is not all bad news on this topic. Just this past week, when asked about the impending date, President Trump said that there will be some “flexibility” when it comes to his reciprocal tariff policy decisions. The markets took kindly to this messaging because seemingly the administration may be open to settling on better than feared policy rather than some of the worst cases scenarios that had upended markets in previous weeks. All of that said, we still think it is wise to take a discerning approach to markets at this time and we will be picking our spots carefully. Over the next week and half, we are watching markets closely and hoping for the best, while remaining prepared for the worst should markets give up the past week’s gains.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

Thanks,