iShares US Insurance ETF (IAK) & iShares MSCI EAFE ETF (EFA)

Equity markets have struggled in the last week particularly in the United States, despite a number of very strong earnings reports from companies across the spectrum including Technology, Industrials, and Consumer Products. While some stocks have responded positively to good news, particularly in the last 24 hours, a number of stocks have run into investor choosing to take profits against results.

Another round of concern about the health of the banking sector and financial system hasn’t helped confidence, although it really hasn’t sparked a resurgence of fear either. Gold continues to trade on either side of the $2,000/oz round number, and the VIX has crept up slightly but remains below 20.00. As we move through earnings season, investors may recall that January to April is one of the strongest seasons of the year for stocks and May-June has historically been one of the weakest times of the year for equities. This weekend the calendar turns to May, bringing the usual flurry of economic reports which include Manufacturing and Service PMI reports from around the world plus employment numbers for the US and Canada. The end of this week features US Q1 GDP today and US Core PCE inflation tomorrow which could help to set the stage for next Wednesday’s Fed decision and statement.

The US central bank is widely expected to raise the Fed Funds rate by another 0.25% to 5.25% which would take it above the Consumer Price Index growth for the first time since before the pandemic. Investors may look to the statement and press conference for hints as to whether the Fed is done or if another rate hike in June remains on the table.

One of the big questions surrounding recent economic news and earnings reports has been how much of an impact has monetary tightening over the last year had on the economy and if we are heading for a soft landing or a recession. This week we continue to move through the heart of earnings season with results on the way from a broad range of sectors including Insurance, Energy, Technology, Mining, Hotels and others. Headliners include Amazon.com and Intel tonight, Exxon Mobil and Chevron tomorrow, Ford, Dupont and Starbucks Tuesday, MetLife and Barrick Gold on Wednesday, and Apple next Thursday.

This week earnings reports from the insurance sector start to roll out and could potentially attract more attention than usual this time around. Back in March, when the health of the financial sector came into question, insurers and brokers sold off even though the problems were centered on banks.

Results from the big, national US banks came in better than expected, but results from First Republic reminded investors that there was significant damage done and rattled confidence. Results from the big insurers may indicate whether the increased fears of the last two months were overblown or not.

The iShares US Insurance ETF (IAK) sold off in early March but quickly stabilized and established a higher low to confirm the current uptrend. IAK has been recovering into April, completing a bullish Triple Top breakout earlier this month and continuing to climb.Upside resistance appears near $91.50 based on a previous column high, the $94.25 to $95.20 zone where previous highs and a horizonal count converge and $98.10 based on another horizontal count. Initial support appears near $84.50 where a 3-box reversal and a retest of a recent breakout point converge.

Although equity markets around the world have struggled in recent weeks, international markets have performed relatively better than North American equities with some countries climbing and others declining but at a more moderate pace. A recent weakening of the US Dollar has also helped to boost the relative performance of International Equity, which remains in first place in the SIA Charts Asset Class Rankings.

The iShares MSCI EAFE ETF (EFA) has been particularly strong since bottoming out last October. An initial high pole rally staged multiple breakouts and snapped a downtrend line. The February-March correction was moderate and not enough to trigger a high pole warning. Into April, the ETF has resumed its upward course, completing a bullish Double Top and a Bullish Catapult.

Upside resistance appears at the previous peak near $78.70, followed by $80.30 based on a horizontal count. Initial support appears near $70.55 based on a 3-box reversal.