S&P 500 Momentum Report

US CPI to offer some answers over Fed’s rate cut debate

Wall Street managed to regain some footing following its sell-off last week as the unwinding in tech stocks stabilises, but a tone of caution will likely persist in the lead-up to the US inflation data. Thus far, market rate expectations are firm towards having a 25 basis point (bp) rate cut from the Federal Reserve (Fed) next week and little surprises from the US inflation data may translate to further stability for the risk environment.

Expectations are for headline consumer price index (CPI) to come in at 2.6% year-on-year, down from previous 2.9%, while the core aspect is expected to stay unchanged at 3.2%. Month-on-month, both headline and core CPI is expected to increase 0.2%.

Any significant upside surprise could amplify stagflation risks amid the softer US economic data lately, and while further disinflation is preferred, too sharp of a fall in pricing pressures could instead trigger concerns around domestic demand. Little deviation in the inflation data from consensus may offer validation to the current rate pricing, which could see a follow-through of the current short-term momentum in the form of a drift higher for risk assets.

S&P 500: Attempting to stabilise following recent sell-off

The S&P 500 has retraced more than 4% since the start of the month, but is attempting to stabilise at near-term support around the 5,400 level, where its daily Ichimoku Cloud stands. The risk environment remains cautious, with the VIX index still flirting with the key 20 level but at least, sentiments have eased off previous ‘greed’ territory based on the Fear and Greed Index.

Short-term market breadth has also eased off previous extreme levels, with the percentage of S&P 500 stocks above its 20-day moving average (MA) now standing at a more neutral read of 53% (down from previous 91%). For now, the broader upward trend seems intact, but it may still be too early to conclude that a low has been formed, as the second half of September tends to be more challenging than the first. The upcoming Fed meeting and developments around the US elections may also serve as added uncertainties for markets to digest. On further downside below the 5,400 level, the 5,270 level may be on watch next for the index.

Levels:

R2: 6,000
R1: 5,674

S1: 5,400
S2: 5,270

Source: IG charts

Nasdaq 100: Upward trendline support on watch ahead

The unwinding in tech stocks has dragged the Nasdaq 100 index lower by around 7% since the start of the month, but eyes will be on an upward trendline support at the 17,737 level for some defending ahead. The trendline has been supporting higher lows for the index since January 2023, most recently being the 5 August dip.

Similarly, short-term market breadth has come off previous extreme levels, with the percentage of Nasdaq stocks above its 20-day MA now standing at 35%. Near-term, the index is hovering just slightly above its 200-day MA around the 18,200 level as well, which remains another level that dip-buyers will be watching closely.

Levels:

R2: 20,000
R1: 18,920

S1: 18,200
S2: 17,700

Source: IG charts

Sector performance

Sector performance over the past week has revealed a defensive lean, with consumer staples, real estate and utilities the only sectors in the green, while other S&P 500 sectors saw losses. Tech stocks bore the brunt of the unwinding, given their stellar outperformance over the past year and relatively lofty valuation. The technology and communication services sectors were dragged more than 5% lower for the week. Nvidia was down 10.8%, in line with the broader sell-off in the semiconductor industry. All other Magnificent Seven stocks were in the red too. The communication services sector was dragged down by a 9.4% loss in Alphabet and a 3.2% in Meta. The energy sector faltered as well, with oil prices trading back at its March 2023 low serving as a key headwind. The energy sector has been the worst-performing sector on a year-to-date basis.

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 3rd – 9th September 2024.

Source: Refinitiv
*Note: The data is from 3rd – 9th September 2024.

Source: Refinitiv
*Note: The data is from 3rd – 9th September 2024.