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Stock Market Forecast for the Week Ahead

Stock Market Forecast for the Week Ahead

Peter Hanks, Strategist

Stock Market Price Outlook:

Stock Market Forecast for the Week Ahead

The S&P 500 broke above 4,000 for the first time ever last Thursday, effectively opening the door to a continuation rally should economic data impress. Evidently, Friday’s non-farm payrolls report provided an optimistic screenshot of the US economy while subsequent ISM data suggested similar strength which are bolstered by recent PMI and consumer confidence reports.

Collectively, recent data suggests the US economy will see its growth outpace most developed economies and the accommodative monetary policy path the Federal Reserve has outlined should offer a similarly encouraging backdrop for growth.

S&P 500 Price Chart: 4 - Hour Time Frame (September 2020 – April 2021)

S&P 500 price chart

Alongside broader economic trends, the S&P 500, Dow Jones and Nasdaq 100 might enjoy a shorter-term tailwind from seasonal trends as the S&P 500 boasts the highest average monthly return during April (since 1990). Finally, IG client sentiment data reveals retail traders remain net-short the US indices despite recent record-breaking rallies. Since we typically take a contrarian view to crowd sentiment, IGCS data suggests the indices might continue higher.

S&P 500 price chart and sentiment

Still, there are considerations to be made. While the US indices, particularly the S&P 500 and Dow Jones, enjoy constructive technical backdrops, sentiment remains surprisingly fragile given the altitude at which they trade. Gamestop, which has been a lightning rod for speculative risk appetite among retail traders, has seen its progress slow and the risk-sensitive currency pair USD/JPY suffered a significant pullback to start the week.

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That said, drawdowns may serve as healthy consolidation amid broader uptrends that have unfolded at break-neck speed over the last few months. A similar pause is readily apparent in rising US Treasury yields which remain a risk for the high-flying technology stocks and the Nasdaq 100. With that in mind, the prevailing uptrend enjoyed by the US indices appears poised to continue, although gains will not occur without retracements.

Such pullbacks may serve as opportunities to shift exposure or move stops and limits for traders on shorter timeframes. In the longer term and in the week ahead, however, a break above 4,000 in the S&P 500 may have opened the door to another leg higher.

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--Written by Peter Hanks, Strategist for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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