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US index futures edged lower ahead of the open, with investors happy to take profit as the earnings season wraps up and not much to look forward to on the macro calendar today. Until new inflation data is released next week to help gauge when there might be a shift towards lower interest rates, don’t be surprised to see some side-ways action in major indices like the S&P 500.  We have heard from a few Federal Reserve officials this week, all suggesting that interest rates may need to remain at these high levels for a longer period than previously anticipated in order to moderate demand and alleviate inflationary pressures.  Still, the lack of any major bearish catalysts could keep the downside limited.
 

Why have stocks risen in recent days?

The pause in the rally comes after a sizeable rally that commenced in the second half of last week and lasted until the start of this week. This was driven by various factors, including better-than-expected earnings, weaker US data to help increase the odds of a rate cut and an announcement from the Fed that it would taper its balance sheet runoff to $25 billion from the current monthly pace of $60 billion in Treasurys. In effect, the Fed will not be removing a good $35 billion in liquidity every month compared to before. This, along with a weaker jobs report and disappointing ISM surveys, all helped to suppress bond yields and underpinned stocks. The weaker macro releases also helped to boost the odds of a Fed interest rate cut by September to around 70% from 58% before. Lower interest rates make stocks more attractive. How? Well, consider the opposite: higher rates are not only a direct cost on businesses that borrow money, they also raise the opportunity cost of holding equities over government bonds that provide a higher yield when rates are high.
 

Corporate news

It has been a good season for Corporate America, but now that Q1 reporting season is at its twilight. Of the 424 S&P 500 companies that have reported their results, a good 78% have beaten analysts' expectations. Typically, this rate is around 67%.

That said, the latest results from Arm Holdings and Airbnb were not great. Intel saw its shares dropped after the US revoked licenses that allowed the firm to sell chips to Huawei Technologies. Here’s a list of the biggest stock gainers today.
 

Jobless claims up next, UoM surveys due on Friday and CPI next week

It has been a quiet week for US data, especially following the recent Fed policy decision, NFP, and other economic indicators. Apart from today’s release of the usual weekly jobless claims data, the only other notable event on the US economic calendar is on Friday at 15:00 BST, when the University of Michigan releases its consumer sentiment and inflation expectations surveys.

Claims are seen rising by 212K compared with 208K the week before. Let’s see if we will see signs of a weaker labour market show in the latest weekly jobs data.

Meanwhile, concerns about persistent inflation remain. This puts University of Michigan’s Inflation Expectations survey into focus. It has climbed steadily from 2.9% in January to 3.2% in April. With recent economic data weakening, will inflation expectations also ease?

The UoM will also release its consumer sentiment data simultaneously, potentially overshadowing the inflation expectations survey. This gauge has disappointed expectations recently and is expected to print 76.3 compared to 77.2 previously.

The key macro highlight in not due until next week. Ahead of CPI on Wednesday, we will have seen the latest PPI figures the day before. Together, the PPI and CPI data for April have the potential to intensify or reduce inflation concerns significantly depending on the direction of the surprise. CPI has consistently beaten expectations since the turn of the year. The Fed and stock market bulls will be hoping to see a softer print for a change, else rate cut expectations could be pushed out further.
 

QQQ technical analysis and trade ideas

The trend remains bullish on the QQQ, an ETF which tracks the performance of the Nasdaq 100, although the momentum seems to have been lost for now. So, a bit of a pullback should not come as surprise, especially as we don’t have a lot to look forward to from both the economic and earnings calendars, and in light of the weaker earnings after the US close on Wednesday.

Among the key levels to watch include 434.00 on the downside. This level served as support in February and March, before breaking down in mid-April, and then offered resistance on a couple of occasions that month. The bulls took control of price action again at the start of this month, driving QQQ beyond that 434.00 level again.

Below 434.00, the next potential support comes in around 426.90, which marks the sizeable gaps that was created after the close on May 2. This level is now the line in the sand for me. A potential breach of that level on a closing basis would be a bearish outcome in my view, which could pave the way for a bigger correction.

Meanwhile on the upside, short-term resistance comes in around 440.00. A close above this level could see the index take out the March all-time high of 449.34.

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