S&P 500 Momentum Report

FOMC meeting on watch ahead to settle debate around policy path

Rate expectations for the Federal Reserve (Fed) policy outlook has undergone some wild swings lately, with the debate between a 25 basis point (bp) and 50 bp complicated by a mixed run of economic data before markets currently settle on a larger 50 bp move (62% probability). However, the focus will likely extend way beyond how much the Fed will cut this week, with many moving parts surrounding the upcoming meeting.

Kicking off with a 50 bp cut this week will likely set the stage for a more aggressive easing cycle ahead, and policymakers will have to walk a thin line in trying to reassure market participants that larger cuts are to bring rates back to neutral, rather than a reaction to greater economic risks. On the other hand, opting for a conservative 25 bp cut this time round will be a less-dovish surprise, which may bode well in the sense that policymakers have less concerns over the economy. But any sharper moderation in economic data ahead may also easily reignite views that the Fed is behind the curve in its rate cuts.

Eyes will be on the Fed’s dot plot to offer more clarity on the pace of rate easing ahead, which may see a huge disparity among policymakers’ views, but with the median potentially guiding for 125 bp of easing by year end to retain some flexibility. Fresh economic projections will also be on watch to guide the soft landing debate. With US unemployment rate (4.2%) currently already at the median projection for 2025, any significant upward revision may likely be a trigger for growth fears. Calm for markets could come in the form of little deviation in economic estimates, with constant reassurances for economic resilience and that the rationale of adjustment is that rates do not have to be so restrictive anymore amid disinflation.

S&P 500: Still seeking catalyst for a break to all-time high

The S&P 500 has recovered to less than 1% away from a fresh all-time high, with the 5,674 level once again proving to be a crucial resistance to overcome, having faltered at this level on two previous occasions. The formation of a higher low with recent retracement seem to reflect buyers’ eagerness in keeping the bull run intact.

Thus far, market breadth are at more neutral levels following the recent retracement at the start of the month, alongside broader risk sentiments as reflected by the Fear & Greed Index. A break to new ground on the upside could pave the way for the index to retest the key psychological 6,000 level next. On the other hand, failure to break new highs could leave the 5,270 level on watch for some dip-buying, where a broader upward trendline may stand as strong support.

Levels:

R2: 6,000
R1: 5,674

S1: 5,400
S2: 5,270

Source: IG charts

Nasdaq 100: Near-term trendline resistance on watch

A 6% recovery in the Nasdaq 100 index over the past week has brought the index back to retest a downward trendline resistance around the 19,526 level, which has connected lower highs since July this year. Much will revolve around the upcoming Federal Open Market Committee (FOMC) meeting to dictate if an upward break can be delivered, which may pave the way towards the key psychological 20,000 level next. On the other hand, failure to cross the resistance could see a near-term retracement towards the 18,000 level, where a broader upward trendline since the start of 2023 may offer some strong support to form a higher low.

Levels:

R2: 20,800
R1: 20,000

S1: 18,920
S2: 18,000

Source: IG charts

Sector performance

Sector performance over the past week revealed growth sectors regaining some traction amid lower Treasury yields, as market participants recalibrated their expectations to price for a more aggressive rate-cutting cycle from the Fed. All the Magnificent Seven stocks witnessed a stellar recovery, with the exception of Apple, which dipped 2.1% in the red on lower-than-expected iPhone 16 demand. Nvidia was up 9.7%, Microsoft and Alphabet were up 6.3%, while Meta, Amazon and Tesla were up close to 5%, supporting a 3% gain in the broader index. That said, value stocks have been outperforming growth since July this year, with one to watch if the trend may continue as lower interest rates may make their dividend-paying status more attractive. The energy sector came in at the bottom of the performance table, marking the only S&P 500 sector in the red. Oil prices touching its lowest level since December 2021 serves as a key overhang, with the sector being the worst-performing on a one-month and year-to-date basis as well.

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 10th – 16th September 2024.

Source: Refinitiv
*Note: The data is from 10th – 16th September 2024.

Source: Refinitiv
*Note: The data is from 10th – 16th September 2024.