S&P 500 Momentum Report

Nvidia’s earnings hold the key for market direction this week

The speech from Federal Reserve (Fed) Chair Jerome Powell at Jackson Hole offered markets with the reassurances that rate cuts will be coming as soon as September, although no hard commitments were made around the scale of cuts as expected. The Fed is now heading into rescue mode, with little tolerance for any “further cooling in labour market conditions" suggesting that they are willing to jump in with more aggressive easing if necessary. One may note that the US unemployment rate currently stands at 4.3%, which is already above the Fed’s projection through 2026.

More clarity will be presented in the US non-farm payroll report next week, with any further jump in unemployment rate likely to renew pressures that the Fed is falling behind the curve. But until then, Nvidia’s 2Q results will offer markets a hurdle to cross this week.

Expectations are for another stellar quarter for the artificial intelligence (AI) darling, but the usual questions will revolve around whether it can deliver more than what markets expect and offer a strong outlook to justify its lofty valuation. With the technology sector being the top-performing sector year-to-date and has done much heavy-lifting for the broad index’s gains, any disappointment could potentially trigger some aggressive unwinding in the AI-exposed names, which suggests little room for error ahead.

Nasdaq 100: Rally on pause in lead-up to Nvidia’s results

The rally in the Nasdaq 100 index has hit a pause over the past week, following a 15.6% bounce since its 5 August low. Having fully priced for upcoming Fed’s policy easing, market participants will be on the lookout for further catalysts, namely from Nvidia’s results and a series of economic data to support soft landing hopes.

For now, the 19,900-20,000 range may serve as near-term resistance to overcome for the index, where a horizontal resistance stands alongside the upper edge of its daily Ichimoku Cloud. On market breadth, the percentage of Nasdaq 100 stocks above its 20-day moving average (MA) is also at a near-term extreme (84%), which may call for some near-term cooling. Any move above the 20,000 level may pave the way for a retest of its record high at the 20,760 level while on the downside, the 18,920 level may serve as immediate support to hold.

Levels:

R2: 20,760
R1: 20,000

S1: 18,920
S2: 17,300

Source: IG charts

Source: TradingView

S&P 500: Standing 1% away from record high

A 10.8% bounce since its 5 August low has left the S&P 500 just 1% shy of its record high. Similarly, short-term market breadth suggests that the percentage of S&P 500 stocks above its 20-day MA stands at an extreme (90%) for now, which called for some breather. Nevertheless, the broader upward trend is likely to persist, as its weekly relative strength index (RSI) continues to trade above its mid-line. A move to fresh all-time high may lay eyes on the key psychological 6,000 level next for a retest. On the downside, any cooling in the rally may leave the 5,452 level on watch as potential support to hold.

Levels:

R2: 6,000
R1: 5,674

S1: 5,452
S2: 5,279

Source: IG charts

Source: TradingView

Sector performance

Sector performance over the past week reflected some rotation from growth sectors into the laggards, with technology and communication services sectors dipping into the red while the real estate and material sectors outperformed. There has been some broadening out in the risk rally, as investors sought cover in value sectors ahead of Nvidia’s results. Reservations may be in place on whether the AI darling can deliver above expectations and offer a strong outlook to justify its lofty valuation. The Magnificent Seven stocks were generally subdued over the past week, notably with Tesla down 4.3%, Nvidia down 2.7% and Microsoft down 1.9%. Ahead, we may expect risk-taking to be limited as investors await Nvidia’s results to clear the air around the AI growth momentum ahead.

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 20th – 26th August 2024.

Source: Refinitiv
*Note: The data is from 20th – 26th August 2024.

Source: Refinitiv
*Note: The data is from 20th – 26th August 2024.