Wall Street: S&P 500 and Nasdaq hit record highs; Fed rate cut expected in September

The S&P 500 and the Nasdaq ended last week at fresh record highs following cooler labour market data which heightened expectations that the Fed will deliver its first rate cut in September. For the week, the Nasdaq gained 3.60%, the S&P 500 added 1.95%, and the Dow Jones added 257 points (+0.66%).

Labour market data insights

Friday's non-farm payrolls data showed the economy added 206,000 jobs in June, in line with expectations. However, April and May's numbers were revised lower by a combined 111,000 jobs. Providing further evidence of cooling, the unemployment rate increased to 4.1% from 4% despite an increase in the participation rate to 62.6% from 62.5%. Lastly, average hourly earnings increased by 3.9% year-on-year (YoY) in June, the lowest since June 2021.

Key events this week

This week, the key events on the US economic calendar are the consumer price index (CPI) and producer price index (PPI) data for June, Fed Chair Powell's semi-annual testimony on monetary policy to the Senate Banking Committee and the start of the US Q2 2024 earnings season. The US rates market starts this week pricing in 19 basis points (bp) of Fed rate cuts in September, with a total of 53 bp of Fed rate cuts priced before year-end.

What is expected from US CPI

Date: Thursday, 11 July at 10.30pm AEST

In May, the annual rate of inflation in the US unexpectedly slowed to 3.3% YoY from 3.4% in April, below forecasts of 3.4%. The annual core inflation rate eased to 3.4% YoY in May from 3.6% in April, for its lowest reading in three years.

The cooler CPI readings were followed in the same session by a more hawkish than expected Federal Open Market Committee (FOMC) meeting as the Fed's Summary of Economic Projections (SEP) dots showed just one 25 bp cut is expected in 2024 vs. the three rate cuts forecast in March.

Fed's stance and upcoming data

Fed Chair Powell, speaking at the Sintra Forum in Portugal last week, sounded dovish and described "real progress on inflation." This, along with softer growth and labour market data last week, has increased confidence that the Fed will start cutting rates in September.

Further confidence will be gained if this week's CPI data is in line with or below market expectations. The preliminary expectation is for headline inflation to fall to 3.1% YoY from 3.3% prior. Core inflation is also expected to remain stable at 3.4% YoY.

US core CPI chart

S&P 500 technical analysis

The S&P 500 was in unstoppable form from the middle of last week, as it surged above weekly trend channel resistance at about 5500 to finish at record highs – once again wiping away potential signs of loss of upside momentum.

Providing the S&P 500 remains above support at 5500, there is scope for the rally to extend towards 5750. While we aren't inclined to chase it higher here, we wouldn't be fighting the move higher.

S&P 500 weekly chart

Nasdaq 100 technical analysis

Last week, the Nasdaq 100 surged above recent highs and weekly trend channel resistance at around 20,050. As can be viewed on the monthly chart below, the magnitude of the rally from the October 2023 low makes the bear market of 2022 seem a lot less significant than it was.

While we wouldn't be chasing the Nasdaq at these levels, given the parabolic nature of the rally, a move towards 22,000 doesn't seem unrealistic in the months ahead.

Nasdaq monthly chart

A daily close below support at 20,050/20,000, as seen on the daily chart below, would be an indication that the uptrend may have run its course and that a corrective pullback is underway.

Nasdaq daily chart

• _{Source: TradingView. The figures stated are as of 8 July 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}