Geopolitical risks continue to drive the global stock market. In particular, uncertainty about trade policy and future tariffs has contributed to declines in United States, European and especially emerging market equities. Large-cap industrial firms have been hardest hit by recent tariffs, but tech stocks and small caps experienced the steepest losses last week after U.S. lawmakers pushed for tighter foreign investment rules. These restrictions could make it more difficult for these companies to raise capital and grow their businesses. (See also: 6 Big Techs Stocks May Get Slammed in a Trade War.)
There is also growing concern over where the underlying economy is headed. Bond yields moved higher for the fourth straight quarter to briefly top 3% in May, but the spread between two-year and ten-year Treasuries continues to narrow. This could be a sign that the bond market is pricing in greater odds of a recession over the coming years, while some experts believe that the ten-year yields may have reached their peak and that the market may be projecting slower growth ahead.
Next week, traders will be watching several key economic indicators, including motor vehicle sales on July 3 and the employment report on July 6. On the employment report, the market will be looking especially hard at wage growth, which has been relatively stagnant despite the falling unemployment.
Broad Market Moves Lower as Risks Rise
The SPDR S&P 500 ETF (SPY) fell 0.79% last week. Traders should watch for a rebound from trendline and 50-day moving average support at around $270.00 or a breakdown toward the pivot point at $266.88 or the 200-day moving average at $264.35. Looking at technical indicators, the relative strength index (RSI) appears neutral at 45.23, but the moving average convergence divergence (MACD) experienced a bearish crossover earlier this month, suggesting further downside ahead.
Industrials Sell Off Amid Trade Tensions
The SPDR Dow Jones Industrial Average ETF (DIA) fell 0.59% last week to the lower end of its price channel. Traders should watch for a rebound from lower trendline and 200-day moving average support at around $241.00 or a breakdown to S1 support at $235.18. Looking at technical indicators, the RSI appears relatively neutral with a reading of 40.35, but the MACD experienced a bearish crossover earlier this month, suggesting further downside ahead. (For more, see: How Now, Dow? What Moves the DJIA?)
Talk of Investor Restrictions Sends Tech Stocks Lower
The Invesco QQQ Trust (QQQ) fell 1.2% last week after breaking down from a rising wedge pattern. Traders should watch for a rebound from the 50-day moving average at $169.28 toward R1 resistance at $174.07 or R2 resistance at $178.43. If shares break down from key support, traders could see a move down to the pivot point at $166.48 or trendline and S1 support at $162.11. Looking at technical indicators, the RSI appears neutral at 47.57, but the MACD experienced a bearish crossover earlier this month, suggesting downside ahead.
Small Caps End Their Winning Streak
The iShares Russell 2000 ETF (IWM) fell 2.07% last week, breaking its recent winning streak. Traders should watch for a rebound from trendline and 50-day moving average support at $161.83 toward R1 resistance at $167.54 or upper trendline and R2 resistance at $172.30. Looking at technical indicators, the RSI appears relatively neutral at 45.64, but the MACD experienced a bearish crossover that could signal more downside ahead. (For additional reading, check out: High Anxiety as Summer Heats Up.)
Charts courtesy of StockCharts.com. The author holds no position in the securities mentioned except through passively managed index funds.