Market Summary Week of May 20

After a push higher at the start of the week, US markets pulled back after many news driven events. This past week marks the first that all three main indices, Dow Jones, S&P 500 and Nasdaq 100, closed negative for the first time in a month. Despite the week starting off with poor economic numbers out of the United Kingdom, the US markets hit all time highs Wednesday following Ben Bernanke’s testimony. Mid morning Wednesday, US markets melted up following the positive comments on behalf of the Federal Reserve Chairman. Such comments provided some reassurance to investors who are still either on the sidelines of the US economy or remain cautious. The spike higher quickly reversed upon the notion that Federal Reserve’s quantitative easing may be winding down. With this news breaking, the price of gold, which is traditionally a hedge against inflation, hit a new trend low then spiked higher. This spike higher, bouncing off the extreme low tick zone of the $1330’s, may be the short squeeze that many gold bugs are looking for. Traditionally, gold has had a somewhat positive correlation with US equities. As gold begins again to look strong, the possibility for it to drive up US equities along with it is high. With this being said, many experts do expect US equities to consolidate for the time being and the current run up has been extreme. Many also believe the market needs to take time to digest the QE news. Within the next week, market participants will have a clear understanding on the next directional move for equities, waiting to see if the upside movement will continue further. This week also saw many S&P components reporting worse than expecting earnings. This provided violent wide range horizontal trade in the last two days of the week.

The week ahead is full of important economic announcements. Following the US Memorial Day holiday Monday, we will hear USD consumer confidence Tuesday which has a consensus of 71. On Wednesday, Germany will release its unemployment change which is expected to be roughly 5K; this is followed by the Bank of Canada’s Interest rate decision later that day where no change is expected from the current 1%. Further more, on Thursday the US government will release its Gross Domestic Product Price Index for Q1 with a prior reading of 1%. We will also hear the USD personal consumption expenditures prices for the quarter over quarter. Closing up the week on Friday the Canadian government will release its March Gross Domestic Product with a prior reading of a gain of 0.3%. Friday will also have the release of the Reuters/Michigan Consumer Sentiment Index with a prior reading of 76.4. The upcoming week will be highly important as another negative close will signal the possible top for equity markets. With this being said, the positive comments from Chairmen Bernanke leave economic news high expectations to live up to.

The US earnings calendar is lightly packed for the up coming week while major Canadian banks report. Bank of Nova Scotia (BNS) is expected to report $1.26 on Tuesday. This is followed by Bank of Montreal (BMO) earnings release before the open on the 29th. EPS estimates for BMO are $1.49. On Thursday, Canadian Imperial Bank of Commerce (CM) is expecting an EPS of $2.08 before the open.