By Rania Gule Market Analyst at XS.com
The S&P 500 index started the current week on a positive note due to increased risk appetite, but it retreated as the release of U.S. inflation data approached, trading at $4,753.30 at the beginning of Wednesday’s session. The market is gearing up for the start of the new earnings season, with major banks beginning fourth-quarter releases next Friday.
The Consumer Price Index (CPI) for December is set to be released on Thursday, providing further signals about the timing of interest rate cuts by the Federal Reserve. On Friday, a significant number of high-profile banks and financial institutions, including BlackRock (BRK), Wells Fargo (WFC), Bank of America (BAC), JPMorgan (JPM), and UnitedHealth Group (UNH), will announce their financial results for the quarter ending in December. This is expected to have a definite impact on the short-term and medium-term movement of stock market indices.
Currently, the stock market appears to be undergoing a corrective pullback from the highs of December, entering a consolidation phase after the substantial increase starting in November from the $4,100 level. However, the upward trend seems to remain active in the medium term, as investor sentiment remains optimistic.
The AAII investor sentiment survey released last Wednesday showed that 48.6% of individual investors are still optimistic, surprisingly higher than the previous reading of 46.3%. The AAII index is considered a contrarian indicator, meaning extremely high readings may indicate excessive satisfaction and lack of fear in the market, while low readings support market increases.
Stock indices are likely to remain stable today in a sideways direction, with potential attempts to test the 4,700 level. Market participants are eagerly awaiting the release of the crucial Consumer Price Index tomorrow (Thursday) and the commencement of the new earnings distribution season on Friday.
As mentioned earlier, the likely scenario is to stay within the 4,700 to 4,800 range despite the dip below 4,700 last week. Therefore, it is advisable to shorten the trading time frame, looking for buying opportunities at support levels and bottoms and selling at resistance levels and peaks.