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Equity futures suggest the sell-off experienced by the market yesterday, its worst one-day performance since 2002, is poised to continue. Investors will continue to digest the flow of earnings from last night and this morning, including horrible results from Ford Motor (F), but quite good results from Lockheed Martin (LMT), Northrop Grumman(NOC), and ServiceNow (NOW) which are driving Wall Street price targets higher. As they consume those and other reports out this morning, they will be keeping one eye on the S&P 500’s 50-day moving average which clocks in at 5,428.30. 

The question to be answered is whether the basket successfully holds that level after falling just over 4% from its recent high at 5,667.20. If not, the next layer of support comes at 5,285.04, roughly another 2.6% lower. If we see the market pull back to that 100-day moving average level, it will equate to the market experiencing one of the 5% or more drawdowns that typically happens a few times each year. Pullbacks of that magnitude tend to be healthy for the market, removing over-exuberance and stretched market valuation multiples. The silver lining is our Market Hedge model (more on that below) has been doing rather well of late. 

With an eye toward the potential for the market to pull back further, something that could hinge on today’s initial 2Q 2024 GDP print and tomorrow’s June PCE Price Index, let’s game out next week. We’re doing this because Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), and Meta (META) account for almost 20% of the S&P 500, and their collected quarterly results and guidance will have a strong influence on the market. Because of the market’s reaction this week to Alphabet’s and Tesla’s quarterly results that we touched on above, if those reports and guidance are not pristine, we could see further pressure on the market.

The degree of that pressure, should it emerge, could be tempered by what is found in the Fed’s latest policy statement and Fed Chair Powell’s post-policy decision presser. While the Fed could surprise the market with an unexpected rate cut next week, we see that scenario as having a low probability. The more likely outcome the market will be looking for is more dovish language from the Fed on the topic of rate cuts. If the Fed surprises us with something that suggests it now sees more than one rate cut as likely before the end of the year, such a signal would buoy the market and a number of our models.  

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