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The next two weeks' data will likely determine the direction of the stock market this summer, according to UBS.
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The upcoming release of April's CPI report and Nvidia's earnings report next week are critical, the bank said.
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“Inflation data and NVIDIA's above-expected earnings could set the stage for an early summer collapse,” UBS said.
The next two weeks will be crucial for the stock market and could determine its direction over the coming summer months, according to a note from UBS.
Jason Draho, head of asset allocation at UBS, said the aggregate data in the form of the April CPI report and April retail sales data, They are scheduled to be released on Wednesday. Along with the exact data in the form Nvidia Next week's earnings report could make or break the markets.
“There are two forces stronger than one to push markets higher, but the effect could be multiplier and not just additive,” Draho said of the upcoming macro and micro data, if they prove to beat investors' expectations.
A cold inflation report, resilient retail sales data, and Nvidia's better-than-expected earnings could unleash “Goldilocks” conditions that create “technical tailwinds as more investors are forced to chase the rally,” Draho said. Such a scenario would likely pay off Standard & Poor's 500 To record heights.
“Inflation data and NVIDIA's earnings exceeding expectations could set the stage for an early summer collapse,” Draho said.
Another scenario is if some of the data disappoints and some of the data impresses investors, in which case the stock market seems likely to be range-bound over the next few months, as the summer months tend to be quiet as data is released.
If both macro and micro data are disappointing to investors, this could lead to an accelerated downward move for stocks and put the market into a recession during the summer months.
“Significant disappointment across the board would be necessary for a further decline in risk taking beyond the index level
“The relative performance will depend on which of these scenarios is implemented,” Draho explained.
UBS is betting on continued signs of growing adoption of artificial intelligence, which would favor the technology sector. The bank said April's cool CPI report will bode well for small stocks, as it will pave the way for interest rate cuts sooner rather than later. Finally, disappointing macro or micro data should benefit higher quality bonds.
“Just as macro and micro factors have diversifying benefits for an overall investment outlook, diversifying investment views is equally valuable,” Draho said.
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