Wall Street: how the Trump assassination attempt affects Wall Street

US equity markets finished higher on Friday, led by the Russell 2000, as investors chased small-cap stocks highly leveraged to Fed rate cuts and that have significantly underperformed the broader market this year. For the week, the Russell 2000 gained 6%, the Dow Jones gained 1.59%, the S&P 500 added 0.86%, and the Nasdaq finished the week 0.30% lower.

Market impacts and upcoming reports

A weaker-than-expected preliminary July University of Michigan Consumer Sentiment on Friday night reinforced the case for a September rate cut from the Fed. The index fell for a fourth month to 66 from 68.2 in June, well below forecasts of 68.5. Both 1-year and 5-10-year inflation expectations slowed to 2.9%. Additionally, the components of Friday night's producer price index (PPI) data that feed into personal consumption expenditures (PCE) inflation, including airfares and financial services, were softer than expected.

This week brings earnings reports from companies, including Bank of America, BlackRock, and Netflix. Aside from earnings, the main points of interest will be retail sales on Tuesday night and a speech from Fed Chair Powell early Wednesday morning.

Implications of Trump assassination attempt

The assassination attempt on former US President Trump has electrified his re-election campaign, adding a volatile mix of uncertainty and speculation. His potential return to the Oval Office presents a paradox for equities. On one hand, Trump's policies could continue to support large fiscal deficits, buoying the stock market. On the other hand, these deficits could exacerbate the challenges of higher inflation and rising US yields.

Furthermore, a reinstated Trump administration is likely to escalate tariffs on China, significantly raising the stakes for a destructive trade war. The shocking weekend shooting has injected an unanticipated wave of uncertainty into the already turbulent election season, potentially casting a long shadow over the US economy for the next three and a half months.

Trump re-election odds chart

Nasdaq 100 technical analysis

Whether last week's rotation out of tech stocks and into small caps cascades into a deeper pullback for the Nasdaq remains a topic of hot debate.

The formation of another potential weekly 'loss-of-momentum' candle suggests it can; however, we remain mindful that 'loss-of-momentum' candles are a warning sign awaiting a trigger to indicate that a pullback is underway.

The trigger, in this instance, would be downside follow-through below the support coming from last week's 20,150 low and recent highs of 20,000. If that were to occur, we would expect to see a deeper pullback initially towards uptrend support at 19,500/400, coming from the April 16,973 low. Until then, allow for further upside towards 22,000.

Nasdaq weekly chart

S&P 500 technical analysis

The price action in the S&P 500 remains very much one-way as it rounded out another week of record highs. While the rally has pushed the relative strength index (RSI) further into overbought levels, and positioning is stretched, we aren't looking to pick a fight with a market in such a bullish mood.

In a nutshell, while the S&P 500 remains above support at 5520/00, allow for the rally to extend towards 5750.

S&P 500 weekly chart

• _{Source: TradingView. The figures stated are as of 15 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.}