Dovish Central Banks Fuel Stock Markets. What Is Next?

S&P 500 and Nasdaq reached another new record high. In fact, last week marked the sixth straight trading session in a row of new all-time highs as major global central banks remain mostly dovish and Q3 earnings continue to top Wall Street expectations.

Central banks

Bank of England was the latest major central bank to maintain its economic supports, surprising many that were expecting an actual rate hike announcement. The BoE echoed U.S. Fed Chair Jerome Powell in citing uncertainties surrounding the labor market, with both worried that moving too soon could derail what has been an uneven jobs recovery.

In most Western countries where inflation is running above recent historical trends, labor market tightness is also currently a struggle.

Consumers are expected to shell out another record amount this year on not just goods, but also things that were mostly off the table last year like travel and dining out. That’s not to mention the glut of container ships backed up at U.S. ports that still need to be unloaded and transported to warehouses and stores across the country.

Data to watch this week

Next week brings critical numbers on the inflation front with the Producer Price Index due on Tuesday and the Consumer Price Index out on Wednesday. The only other big economic report of note next week will be Consumer Sentiment on Friday.

The pace of earnings releases next week will slow down a bit but there are still several key results to come. Highlights include PayPal on Monday; Adidas, BioNTech, Coinbase, DoorDash, Dr. Horton, NIO, Palantir, Sysco, Toast, and Wynn Resorts on Tuesday; Affirm, Disney, GoodRx, Novozymes, and Stellantis on Wednesday; Applied Materials, Bridgestone, Nice, Siemens, and Tencent on Thursday; and AstraZeneca on Friday.

SP500 analysis

SP500 broke above 4600 resistance. Technically, it should reach 4800 given enough time. However, it looks like the market is moving too fast and aggressively. Usually it is a sign we will have increased volatility soon. The ADL is still bullish. On the other hand, professional traders cut their long positions in the market. The accumulation pattern is similar to the one we saw in September. At that time SP500 lost over $250.

In general, everything supports the bullish trend. But the risks are increasing for short-term traders.