US Equities Rebound As investors Digest Earnings, Eye Inflation Data

US data and earnings will be in focus this week after big tech earnings spurred large market swings last week. If US economic data triggers an additional repricing of hawkish Fed bets, that risks further downside, particularly for growth and tech shares.

US equity markets were able to erase pre-market losses to trade modestly higher early on Monday’s trading session. The S&P 500, up about 0.25%, has been able to climb back to the north of the 4500 level, though has so far traded within thin ranges as investors mull incoming US data and Fed speak plus more earnings this week.

The Nasdaq 100 index is about 0.8% higher and the 14.75K area, while the Dow is flat but remains decently supported above the 35K mark. As for the most exciting market stories, Pelaton’s shares, which fell more than 75% over the course of the year as the global economy reopened, hurting demand for at-home exercise equipment, were able to jump to as much as 20% on Monday. Amazon and Nike are both interested in buying the company out.

The main earnings in focus this week include Nike and Pfizer, while traders will continue to digest last week’s big tech earnings. Traders still remember and digest the Facebook earnings report on Thursday that halted and partially reversed what had up until then been a very strong and broad equity market recovery on the week, with the company’s shares now down nearly 30% versus pre-earnings levels.

In the broader equity market, strong earnings from Amazon, which is up more than 16% versus pre-earnings levels, saved the day, or week. The S&P 500 still managed to end the week about 1.5% higher.

This week will be a key test as to whether the first week in February was a dead cat bounce or the start of a more meaningful recovery back towards record highs following January’s more than 5.0% pull-back. The same concerns about Fed tightening which motivated the January decline remain elevated and at the forefront of investor minds in wake of strong US labour market data last week and ahead of US Consumer Price Inflation data this week.

If the upcoming inflation data further pump already elevated expectations for a 50bps hike from the Fed in March, that could mean downside risk for growth and big tech shares. Last Friday’s lows at the 4450-balance-area are a clear level of support to keep an eye on to the downside, with any break below potentially opening the selling floodgates for a move back towards support in the 4300 area.