S&P 500 on yet another record high to start the week

Markets await Fed Chair Jerome Powell’s testimony and US inflation data

With the surprise contraction in US June services activities and signs of softening in the US labour market, the case for a September rate cut from the Federal Reserve (Fed) has been cemented. Market rate expectations are now looking at a 77% probability of a September easing, up from the 50% priced just a month ago.

Ahead, market participants will be watching whether the overshoot in US unemployment rate (4.1%) above the Fed’s previous projections (4.0%) will be sufficient to prompt a more dovish tone from the Fed Chair in his upcoming speech to Congress. This week will also bring the key US consumer price index (CPI) release, with market participants hoping to see further moderation in pricing pressures to be in line with the inflation progress that US policymakers seek.

S&P 500: Yet another record high to start the week

The S&P 500 edged to yet another record high to start the new week, with the formation of a new higher high reinforcing the prevailing upward trend in place. While its daily relative strength index (RSI) is heading into overbought territory, past instances suggest that any retracement tends to be short-lived. On the broader scale, the index trades within a rising channel pattern, which may seem to leave the 5,800 level on watch, where the upper channel trendline resistance may reside.

On the downside, the previous 5,520 level of resistance will now serve as immediate level to hold, which may draw a support confluence from the lower channel trendline, alongside its daily Ichimoku Cloud zone.

Levels:

R2: 5,800
R1: 5,681

S1: 5,520
S2: 5,350

Source: IG charts

Nasdaq 100: Retesting upper channel trendline resistance

Similarly, the Nasdaq 100 index has been trading within a rising channel, but recent moves seem to bring a retest of the upper trendline resistance at the 20,500 level, where some resistance may be expected. Any retracement at current point may also run the risk of a near-term bearish divergence on daily moving average convergence/divergence (MACD), but trading in line with the broader trend will still leave buying-on-dips as the preferred strategy. On the downside, the key psychological 20,000 level will be on watch as immediate support to hold.

Levels:

R2: 21,200
R1: 20,550

S1: 20,000
S2: 19,500

Source: IG charts

Sector performance

Amid the build-up in dovish Fed bets, lower Treasury yields over the past week have translated to outperformance in rate-sensitive growth sectors. The consumer discretionary sector led the pack with a 3.9% weekly gain, followed by technology (+3.5%) and communication services (+1.4%), as megacap tech shares continued to see traction on the artificial intelligence (AI) trend. More notably, Tesla saw a 27.9% gain for the week as better-than-expected 2Q vehicle deliveries prompted the S&P 500 laggard to undergo some catch-up growth. Despite the recent surge, Tesla’s share price is only up 1.8% year-to-date, still trailing behind its Magnificent Seven peers which have all seen double-digit gains thus far.

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 2nd – 8th July 2024.

Source: Refinitiv
*Note: The data is from 2nd – 8th July 2024.

Source: Refinitiv
*Note: The data is from 2nd – 8th July 2024.