Market Insights

Stocks declined again last week as three big questions plagued the market.

The S&P 500 slipped 0.2 percent between Friday, April 24, and Friday May 1. Despite dropping for the second straight week, the index still rose 12.7 percent in April. It was the biggest monthly gain since January 1986.

Industries hammered the hardest by coronavirus led the bounce. Those included energy, cruise lines, shopping centers and banks. Homebuilders also rallied on signs of demand coming back, especially after urban professionals spent a month trapped in city apartments.

Here are the three big questions investors may face now.

Is All the Good News Priced In?

There was a ton of important news last week. The biggest technology stocks — Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Alphabet (GOOGL) and Facebook (FB) — reported earnings. They were mostly positive, however their outlooks were less than stellar.

AMZN, for instance, said coronavirus mitigation will devour its entire second-quarter profit. GOOGL and FB both cautioned that online advertising will probably keep shrinking along with the economy.

Speaking of the economy, gross domestic product contracted 4.8 percent in the first quarter. It was much deeper than the -3.5 percent forecast, continuing a string of worse-than-expected numbers since Covid-19 swept the globe two months ago.

Gilead Sciences (GILD) spurred optimism on Wednesday morning after a trial indicated that its Remdesivir drug may work against the disease. The Federal Reserve followed that with a pledge to keep interest rates low well into the future. That day, the S&P 500 closed at its highest level in almost two months.

But then the headlines turned. First, jobless claims were higher than expected. Then, President Trump revived tariff fears by suggesting the U.S. may hold China responsible for letting coronavirus spread. Finally, Tesla (TSLA) CEO Elon Musk blindsided shareholders by saying his stock price was too high.

That apparent swing from bullish hopes to bearish realities could raise the question: Is all the good news priced in?

Did The S&P 500 Hit Resistance?

The S&P 500’s violent bounce in April brought it back to some important levels. First were the lows from last summer, which it passed in mid-April. Next was a line around 2940, where it peaked last week.

If that price area turns into resistance, buyers may retreat and sellers could return to the market. That could drive up volatility and make traders start targeting downside levels for retests. There’s plenty of space for consolidation, even if the index holds its March 23 low.

Will Oil Fall Again?

Crude oil could be another big question. May futures stunned the world by going negative two weeks ago. Prices, along with oil stocks, have rebounded since then. However, their longer-term trends are undeniably bearish.

The current contract for June delivery expires on May 19. While that’s still two weeks away, traders may start to worry about short-term demand with the global economy now in recession. Keep this on your radar as a potential risk.

Still, there are some positives as social-distancing policies end. First is an apparent surge of demand for single-family houses:

• Redfin said on April 17 Americans suddenly want to leave cities in favor of the country.
• Zillow reported an acceleration of pending home sales and traffic on April 23.
• CNBC reported on April 27 that single-family home sales were spiking, based on research firm John Burns Real Estate.
• On April 29, mortgage data from MBA showed a 12 percent growth in loan applications for purchases (not refinancing).

Bitcoin and the Week Ahead

Last week also saw a 16 percent rally in Bitcoin (BTCUSD). It was the cryptocurrency’s best week since October.

Remember that BTCUSD’s “halving” event takes place around May 10. That means new tokens will be created at half the pace as before. The result will be less supply. Price rallies followed previous halving events in 2012 and 2016.

Traders may want to keep an eye on the $9,500 level, near a downward-sloping resistance line in BTCUSD.

This week also features some big quarterly reports and economic news.

Today’s noteworthy items are earnings from Skyworks Solutions (SWKS) and Shake Shack (SHAK).

Tomorrow brings the Institute for Supply Management’s service-sector index. Walt Disney (DIS), Activision Blizzard (ATVI) and Beyond Meat (BYND) are the noteworthy results.

ADP’s private-sector payrolls report and crude oil inventories are due Wednesday. General Motors (GM), PayPal (PYPL), Shopify (SHOP) and CVS Health (CVS) are also due.

Jobless claims and Roku (ROKU) earnings are the big items Thursday.

The week concludes with non-farm payrolls and Cronos (CRON) results on Friday.