3 Categories of News Will Determine What the Market Does Next
Price action is promising, but news risk is extremely high. These areas will impact where stocks are headed.
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The major equity indexes and many individual stocks are in strong technical position as investors await a flood of news events. After hitting bottom on April 7, the market had a record-setting reversal day to the upside on April 9 when President Trump delayed tariffs. Since then, there has been another worrisome dip, but then a further move higher on optimism about tariffs has the S&P 500 at its highest close since April 2.
Technicians are pleased with how the action is developing, but there is major overhead lurking, and some consolidation is needed to provide a stronger foundation for another move higher.
Meanwhile, the bears don’t care about the charts and are focused on potential negative news. There are three major areas of news that will determine where things are heading next.
1. Tariffs and trade. By far, the most important issue is whether trade deals will be put into play and whether impending tariffs will be modified. This morning, Trump provided some relief to automakers who were hit very hard with tariffs, but auto stocks are only trading up about 1% or more.
Treasury Secretary Scott Bessent is scheduled to appear with Press Secretary Karoline Leavitt at 8.30 a.m. ET for a briefing on "unleashing economic greatness." Market players eagerly await the framework of the first trade deal that will be used as a blueprint for other countries. That news is likely to determine where things are headed in the intermediate term.
2. Earnings. Earnings results are rolling in, with the most important reports from Amazon AMZN, Apple AAPL, Meta META, and Microsoft MSFT starting to hit on Wednesday night. Guidance from these heavyweights will have a significant impact on views that a recession is likely to occur. So far, earnings season has not produced many big winners. United Parcel Service UPS, for example, beat its EPS forecast but is laying off employees and declined to provide full-year guidance due to "macro-economic" uncertainty. Expect to see more of the same from other major names.
3. Economic Data. There is a full load of economic data coming this week, starting with consumer sentiment on Tuesday morning. There will also be inflation and employment reports to digest. Estimates of the probability of a recession are hovering around 40 to 60 percent, but inflation is coming down, and the hopes of a Fed rate cut in June are increasing. The hope is that a dovish Fed will help to battle the slowing economy, but many economists believe that the slippery sloop to an economic pullback is already in place.
The strong technical conditions of the market illustrate that there is optimism that we will be able to effectively navigate these three areas of news risk, but the great likelihood is that it will be a very bumpy ride as the market digests and discounts the impact. Price action is promising, but the news risk is extremely high.
We have a quiet start on Tuesday morning as we await news.
At the time of publication, Rev Shark had no positions in any securities mentioned.
