S&P 500 Could Break Out From Bullish Pattern Today - Where to Allocate Now

The big news this week was the release of another hotter-than-expected CPI report, causing investors to push back their rate cut expectations.

The market now thinks that the Federal Reserve will cut rates just twice this year starting in September, which is a major turn of events that looked unlikely at the start of the year.

But while there is a risk that the major indexes may decline as a result of the continued rise in bond yields, owing to concerns about inflation and interest rates remaining elevated for longer than expected, there are certain sectors or stocks that could still hold their well.

The current market environment is one where investors have to be selective about which stocks they want to invest in.

In this regard, our predictive AI stock-picking tool can prove a game-changer. For less than $9 a month , it will update you on a monthly basis with a timely selection of AI-picked buys and sells, giving you a significant edge over the market.

Subscribe now and position your portfolio one step ahead of everyone else !

Among the sectors and individual stocks that could do well in this scenario are XLE (NYSE:XLE) and Exxon Mobil Corp (NYSE:XOM).

The market's response was a swift one on Wednesday, although we didn't see much further downside follow-through after the immediate negative reaction to the CPI data, suggesting that bearish traders are too afraid to stand in the way of the stock markets given how strong the rally had been in the last couple of quarters, with investors ignoring all sorts of bearish catalysts.

Additionally, we have bank earnings starting this week, which is another factor discouraging the bears from entering the fray too forcefully, while the crude oil rally – thanks to heightened geopolitical risks in the Middle East concerning Iran and Israel – helped to support share prices of energy companies.

Looking ahead, traders will be watching the US PPI data, following the hotter-than-expected CPI report the day before. If evidence of sticky inflation is also evident in PPI data, this could further weigh on risk sentiment.

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

The somewhat sluggish start to Q2 comes after stocks had been on a blinder for the last 5 months, thanks in part to AI hype and prior optimism about potential interest rate cuts by the Federal Reserve, and other major central banks, starting by June or even earlier.

Since late October, the S&P 500 has shot up about 28%, so there was always the potential for some profit-taking which we got in these last couple of weeks. Now, there is renewed uncertainty over interest rates and the market’s pricing of the probability of a June cut has fallen sharply.

Despite the Fed’s sharp tightening of its belt, inflation is showing signs of re-accelerating and economic data has remained quite resilient. So, the key question is whether further weakness may be on the way. As traders, we must be prepared for both scenarios, and keep a close eye on key levels of indexes, and sectors individually.

Following the big rally over the past 5 months or so, the risks of a correction remain high, especially when you consider for example that US oil prices are north of $85 per barrel and governments are facing rising costs of servicing their debt as yields climb, making it increasingly difficult to continue borrowing without raising the debt-to-GDP ratios to alarming levels.

So far in 2024, investors have largely shrugged off these worries and concerns about over-stretched valuations. Let’s see if that changes as we head deeper into Q2 and 2024.

• 1. SPY breaks support at 21-day exponential average

The chart of SPY, which tracks the S&P 500, is starting to look a little bit weak. On Wednesday, it gapped and closed below the 21-day exponential moving average, adding to the recent bearish signals.