S&P 500 weekly report: inflation check, US CPI data to influence Fed rate decision

US consumer price index (CPI) to offer final inflation check ahead of next week’s Federal Reserve (Fed) decision

The risk rally in Wall Street has cooled into the new week, potentially as extreme bullish positioning called for some near-term profit-taking, with Nvidia under China’s crosshairs offering a reason to de-risk.

China’s probe into Nvidia on anti-monopoly grounds may be somewhat political, especially after the US restricted Nvidia and other key semiconductor companies from selling their most-advanced artificial intelligence (AI) chips to China. If anything, the recent move suggests that China is not going down without a fight, with tech tensions likely to escalate with the upcoming Trump administration.

What to expect for US CPI this week

Ahead, the economic calendar will leave US CPI data on watch. Expectations are for US core inflation to remain unchanged at 3.3% year-on-year, marking the third straight month in which inflation progress has stalled. Headline inflation is expected to edge slightly higher to 2.7%, up from 2.6% previously. Month-on-month, the core aspect is expected to increase 0.3%, which could still be argued as consistent with the Fed’s disinflation narrative.

Thus far, market expectations are firmly priced for further Fed easing next week (85% probability from the rates market). While the US CPI data may not shift expectations for a December rate cut significantly, any persistent inflation read could determine whether we see a "hawkish cut" from policymakers, who may lay the groundwork to keep interest rates on hold in January next year.

US core and headline CPI chart

S&P 500: trading within broad channel pattern

The S&P 500 continues to trade within a broad channel pattern, and while there is some profit-taking to start the new week, it will likely take more to reverse the upward trend. In the near term, a secondary upward trendline at the key psychological 6000 level may be on watch as immediate support to hold. Failing to hold the trendline could pave the way for a deeper retracement towards the 5861 level next, where its daily Ichimoku Cloud and 100-day moving average (MA) will likely offer a support confluence.

The longer-term price target for the S&P 500 may be at the 6420 level, where a Fibonacci extension level stands. For now, its daily relative strength index (RSI) has reversed from near-term overbought levels, with any move towards its mid-line at the 50 level potentially on watch to offer a technical reset for another run higher.

Key levels:

• R1: 6184
• R2: 6420
• S1: 6000
• S2: 5861

S&P 500 daily chart

Sector performance highlights renewed growth rally

Sector performance over the past week reflected a renewed rally in growth stocks, driven by expectations of a 25 basis point (bp) Fed rate cut in December following a 'Goldilocks' US jobs report. However, the gains were not evenly distributed, as value sectors faced headwinds.

Energy (-3.9%), utilities (-3.1%), and materials (-3.0%) gave back some of their earlier advances, potentially as a result of a smaller extent of economic surprises lately. The US economic surprise index has retreated slightly from its November high.

Tech leads market momentum

Market momentum was concentrated in a few heavyweight tech stocks, with Tesla surging 9.2% for the week, Amazon climbing 7.3%, and Microsoft and Meta advancing 3.5% each.

Looking ahead, while geopolitical uncertainties and China’s anti-trust scrutiny of Nvidia have unsettled risk sentiment, it may take more to derail the broader uptrend. Expectations of a US economic soft landing, Fed rate easing, and favourable year-end seasonality are likely to keep risk sentiments underpinned.

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