S&P 500 Momentum Report

What to expect for the upcoming US consumer price index (CPI)?

This week will see the release of US September CPI data on 10 October 2024 and if anything, the data may likely offer more support for the Federal Reserve (Fed)’s rate cutting cycle. Further disinflation seems to be the story, with headline CPI expected to ease to 2.3% from the 2.5% prior. The core aspect is expected to ease to 3.1% from the 3.2% prior. If it plays out, this will mark the lowest core CPI read since May 2021.

Month-on-month, headline CPI may ease to 0.1% from 0.2% prior, while core CPI may edge lower to 0.2% from 0.3% prior. A look at the recent Institute for Supply Management (ISM) prices data offered somewhat of a mixed view, with manufacturing prices contracting at a faster pace (48.3 versus 53.5 est) but that was balanced out with stronger expansion in services prices (59.4 versus 56.3 est), which should translate to a continued gradual pace of disinflation overall.

What’s next?

While inflation remains above the Fed’s target, the broader trend of easing pricing pressures will offer the reassurances for policymakers that inflation is largely under control and the balance of risks is now shifted towards higher unemployment.

Currently, market expectations are well-anchored for the Fed to tread in intermittent steps of 25 basis point (bp) cuts over the next few meetings. Barring any significant deviation in the inflation data from consensus, risk sentiments may remain well-supported and potentially take its cue from other developments on the geopolitical front, corporate earnings and the lead-up to the US elections.

The key risks come in terms of any significant deviation from consensus, whereby a read in headline above 2.5% could see market price out rate cuts at the November meeting, while a read below 2.0% could highlight greater economic risks and call for more urgent intervention from the Fed to support growth.

S&P 500: Trading in near-term consolidation

The S&P 500 has been locked in a near-term consolidation since mid-September, potentially awaiting fresh cues to drive greater direction. On the four-hour chart, a crucial level of support may be presented at the 5,674 level, which has undergone at least four retests over the past month. Any subsequent breakdown of the 5,674 level could reflect greater selling pressures in the near term, which may leave the 5,546 level on watch next.

Levels:

R2: 6,000
R1: 5,800

S1: 5,674
S2: 5,400

Source: IG charts

Sector performance

Sector performance over the past week revealed a pull-ahead in the energy sector (+6.5%), taking its cue from a surge in oil prices as market participants price for potential supply disruptions amid ongoing geopolitical risks. Elsewhere, all other S&P 500 sectors were in the red, with the broader index down 1.2%. Despite a blockbuster US job report for September which helped to downplay labour market risks, risk sentiments remain cautious around geopolitical uncertainties in the Middle East, weak seasonality and the countdown to US elections. This is presented in the VIX trading at its one-month high, which reflects increased hedging activities. That said, with hopes of a soft landing reinforced and Fed’s easing policy in place, it may likely have to take much more to reverse the broader upward trend for the S&P 500.

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 1st – 7th October 2024.

Source: Refinitiv
*Note: The data is from 1st – 7th October 2024.

Source: Refinitiv
*Note: The data is from 1st – 7th October 2024.