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Mixed Earnings & Musk’s Outlook Triggers Selling Amid Flat U.S. Stocks

On Friday, 21st April 2023, U.S. stocks ended the week mostly flat amid mixed quarterly earnings reports and conflicting economic data that raised concerns about a potential economic slowdown.  

Notably, Tesla’s earnings report and Elon Musk’s cautious economic outlook led to some selling in the stock and the broader market. 

Investors are also weighing the implications of the change in the anticipated Federal Reserve cuts later this year. The swap market is now pricing only one cut, down from three by the end of the year. 

Next week, investors will focus on the earnings reports from Microsoft, Amazon, and Alphabet, the key stocks that have helped the S&P rally so far this year. 

For the week, the Dow Jones fell 0.3% to snap a four-week winning streak, while the S&P 500 and Nasdaq slipped 0.1% and 0.4%, respectively. 

Here are the closing levels on Friday, 21st April 2023:

 Last Change %Change 
Dow Jones 33,808.96 +22.34. +0.07% 
S&P 500 4,133.52 +3.73. +0.09% 
S&P 500 12,072.46 +12.90. +0.11% 
U.S. 10Y 3.57%   
VIX 16.77 -0.40 -2.33% 

Investors are more likely to listen to Elon Musk than Jerome Powell. 

Musk predicts the U.S. economy will have a tough year, before rebounding next spring or summer. Considering his recent price cuts, market players reacted by selling the stock and the market followed suit. 

While dip-buying remains active, bouts of selling are causing frustration. 

At one point, the market was looking for a rate cut in June which is just over a month from now. This has obviously looked foolish as the next move by the Fed is still most likely to be a 25-basis point hike. Nevertheless, the market is still holding up quite well considering. 

As the next hike would probably be the last in this hiking cycle, it could give hope for longs to stay the course and keep buying the dips. 

The upcoming quarterly earnings from the mega caps may give us more guidance on whether to keep this strategy or prepare for a much bigger pullback in prices. 

The recent trend has been slightly downward, and technical indicators suggest weakness, so caution is advised. 

Source: CBOE, Bloomberg. 

This commentary is written by James Gomes.
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years.

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