From a melt-up to a sell-off, the next two weeks will determine the stock market’s direction for the summer

• According to UBS, the next two weeks of data will likely determine the direction of the stock market this summer.

• The bank said the upcoming release of April’s CPI report and Nvidia’s earnings report next week are crucial.

• “Inflation and NVIDIA earnings data that beat expectations could set the stage for an early summer melt-up,” 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 macro data in the form of the April CPI report and April retail sales data: both will be released on Wednesday, combined with microdata in the form of Nvidias Next week’s earnings report could make or break the markets.

“Two forces are stronger than one to push markets higher, but the effect could be multiplicative and not just additive,” Draho said of the upcoming macro and micro data, if they prove to exceed investors’ expectations.

A cool inflation report, resilient retail sales data and better-than-expected Nvidia earnings could unleash “Goldilocks” conditions that create a “technical tailwind as more investors are forced to chase the rally,” Draho said. Such a scenario would likely increase pressure on the economy S&P500 reach record heights.

“Inflation and NVIDIA earnings data that beat expectations could set the stage for an early summer melt-up,” Draho said.

Another scenario is that some of the data disappoints and some of the data impresses investors. In that case, a stock market within a certain range seems likely for the next few months as the summer months tend to calm down with data releases.

And if both macro and micro data disappoint investors, it could lead to an accelerated downward movement for stocks and send the market into the doldrums in the summer months.

‘Significant disappointment across the board would be necessary for a greater decline in risk. Above the index level
returns, relative performance will depend on which of these scenarios plays out,” Draho explains.

UBS is betting on continued signs of increasing AI adoption, which would further their preference for the technology sector. The bank said a cool CPI report for April would bode well for small-cap stocks as it would pave the way for rate cuts sooner or later. Finally, disappointing macro or micro data should benefit high-quality bonds.

“Just as macro and micro factors have a diversifying benefit to the overall investment outlook, diversifying investment views is equally valuable,” Draho said.

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