Wall Street: CPI and Fed speak to challenge Nasdaq’s November reign

Market moves on consumer sentiment and Moody’s downgrade

US stock markets saw a rally on Friday despite the University of Michigan Consumer Sentiment surprising to the downside. With consumer spending, a major contributor to US GDP, showing a fourth consecutive month of decline since its July peak at 71.6, signs point to a cooling economy.

After Friday's market closure, Moody's downgraded the US credit rating outlook from stable to negative, citing increased downside risks to the country's fiscal strength. “Downside risks to the US's fiscal strength have increased and may no longer be fully offset by the sovereign's unique credit strengths," it said.

Moody’s announcement followed a downgrade by rating agency Fitch earlier this year. After a review, Moody’s is likely to follow suit and cut the US sovereign credit rating one level from AAA to AA+. Given that it is expected, we would assume a similar mute reaction to the one that followed the Fitch downgrade.

This week's key economic data

This week, the key economic event in the US will be Wednesday's CPI, previewed below, as well as Thursday's retail sales report for October. The Q3 earnings season is in the home stretch with reports from companies this week, including the giant retailers Home Depot, Target, Walmart, JD.com, Alibaba and Cisco.

Last week, we heard Fed Chair Jerome Powell sound hawkish, seeking to manage the dramatic easing in financial conditions since late October. Expect more of the same with a busy line up of Fed speakers scheduled for this week.

What to expect from October's CPI report?

In September, headline inflation held steady at 3.7% YoY after peaking at 9.1% in June 2022. Core inflation, excluding volatile items such as food and energy, fell to 4.1% YoY from 4.3% the previous month. This month, the market expects the headline rate to fall to 3.3% YoY. Core inflation is expected to remain stable at 4.1% YoY.

S&P 500 technical analysis

While the decline from the July 4634.509 high went deeper than expected, it displays countertrend or corrective traits rather than impulsive characteristics. The close above the 200-day moving average at 4273 in early November was a positive development, in terms of rectifying the damage caused by the late October sell-off, as was last week's close above the October 4430 high.

The next upside test for the S&P 500 is trend channel resistance at 4500, coming from the July 4634.50 high. A sustained break above 4500 would then set up a test of the September 4566 high, followed by the July 4634.50 high.

On the downside, there is a layer of support between 4280 and 4235 coming from the 200-day moving average and the early October 4235 low.

S&P 500 daily chart

Nasdaq technical analysis

In our previous updates, including this one from over a month ago here we highlighted the 14,200/14,000 layer of support as a key area for the Nasdaq to complete a correction from the July 16,062 high and said,

“Should the pullback play out as expected, we then expect to see a recovery, which would see the Nasdaq test and break the highs of July and possibly set up a test of the bull market 2021, 16,764 high.”

After holding and rebounding from the support mentioned above, the Nasdaq surged above trend channel resistance on Friday to confirm that its 12% correction from the July 16,062 high is complete at the October 14,140 low.

The next upside target for the Nasdaq is the 15,719 September high before the July 16,062 high with a possible Wave V target viewed 16,400 area.

Nasdaq daily chart

• _{Source Tradingview. The figures stated are as of 13 November 2023. 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.}