Stocks Climb as Economic Data Eases Inflation Fears

Last week witnessed significant gains across major U.S. stock indices. The Federal Reserve's Beige Book highlighted a moderately growing economy with robust employment figures, despite softness in automotive sales and housing sectors. However, the nonfarm payrolls report exceeded expectations by a wide margin. Although the data presented a mixed picture, markets reacted positively, anticipating that slower economic growth combined with subdued wage inflation might lessen the probability of four interest rate hikes this year.

Global markets also experienced upward momentum. Japan's Nikkei 225 advanced by 1.36%, Germany's DAX 30 increased by 3.63%, and the UK's FTSE 100 climbed 2.19%. In Europe, the European Central Bank opted to keep interest rates unchanged while signaling that expanding economic stimulus measures is unlikely. Meanwhile, Chinese leadership expressed concerns regarding economic conditions and environmental pollution during their annual state of the nation address to legislators. (For further insights, refer to: 4 Early Warning Signs of the Next Financial Crisis.)

The SPDR S&P 500 ETF (ARCA: SPY) gained 3.64% over the week. Having bounced back from February lows, it broke through trendline resistance and approached previous reaction highs. Traders should monitor for a breakout toward R1 resistance at $285.50 or a retest of all-time highs. Conversely, a decline could test the 50-day moving average near $273.77 or lower support levels around $269.21. Technical indicators show a neutral Relative Strength Index (RSI) at 59.64, with the Moving Average Convergence Divergence (MACD) hinting at a potential near-term bullish crossover.

The SPDR Dow Jones Industrial Average ETF (ARCA: DIA) rose by 3.35%, marking it as the weakest performer among major indices. After rebounding from trendline support, it may soon challenge resistance near $255.00. Traders should watch for a breakout toward R1 resistance at $263.90 or previous highs, or a breakdown to retest support around $248.00. The RSI stands at a neutral 54.93, while the MACD suggests a possible bullish crossover.

The Invesco QQQ Trust (NASDAQ: QQQ) led gains with a 4.32% increase. After bouncing off its 50-day moving average, it broke through trendline resistance near $170.00 last week. Traders should look for upward movement toward R1 resistance at $175.25 or R2 resistance at $183.29, or potential declines testing support at $170.00 or $167.50. The RSI is elevated at 65.24, and the MACD remains bullish. (Also see: Consumer Stocks Bump Techs as Investors' Favorite Sector.)

The iShares Russell 2000 Index ETF (ARCA: IWM) climbed 4.3%. After rebounding from pivot support, it surpassed the 50-day moving average and R1 resistance, moving toward prior all-time highs just above $160.00. Traders should watch for attempts to retest these highs or pullbacks to the 50-day moving average at $155.22 or pivot support near $150.00. The RSI is relatively high at 63.89, while the MACD remains bullish.

The Takeaway

Major stock indices advanced last week. Although RSI levels for QQQ and IWM approach overbought territory, there remains room for further gains. Market participants will closely monitor key economic releases next week, including retail sales on March 14, jobless claims on March 15, and industrial production on March 16. Additionally, evolving geopolitical developments will remain in focus. (For more, see: 'Buy on the Dip' Is Alive and Well as Investors Bet on Rebound.)

Note: Charts provided by StockCharts.com. The author holds no positions in the securities mentioned as of this writing.

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