Wall Street: US stocks rally as PCE inflation data eases investor concerns

US markets gain on reassuring PCE inflation data

US stock markets gained on Friday, reassured by comforting personal consumption expenditures (PCE) inflation data. After a shaky start to August, all three key indices ended a volatile month in the green. The S&P 500 gained 2.38%, the Dow Jones added 1.76%, and the Nasdaq rose 1.1%.

The Federal Reserve's (Fed) preferred measure of inflation, the PCE price index, increased by 0.2% in July and 2.5% year-over-year (YoY), in line with expectations. Core PCE rose by 2.6%, slightly below the consensus of 2.7%.

Focus on non-farm payrolls

This week, the spotlight will be on Friday night's non-farm payrolls (NFP), following a weak employment report last month that triggered a sharp sell-off in stocks due to concerns about a hard landing.

The release of stronger-than-expected economic data since has allayed fears of a hard landing, with many equity markets rebounding back towards previous highs. The rebound indicates where the balance of risks lies ahead of the NFP release and the seasonally challenging month of September.

What to expect from non-farm payrolls

Date: Friday, 6 September at 10:30pm AEST

In July, the US economy added 114,000 jobs, well below forecasts of 175,000, while the unemployment rate rose to 4.3% from 4.1%, the highest since October 2021. The weaker data may have been influenced by distortions created by Hurricane Beryl's impact.

For August, the market anticipates a rise of 165,000 jobs and a fall in the unemployment rate to 4.2%. If the US economy adds 150,000 jobs or more and the unemployment rate eases to 4.2% or below, it would increase confidence that the economy is on track for a soft landing.

On the other hand, if 90,000 or fewer jobs are added in August and the unemployment rate remains at 4.3% or higher, it would reignite fears of a hard landing and support calls for a more significant 50 basis points (bp) Fed rate cut this month. The interest rates market is pricing in a 70% chance of a 25 bp cut and a 30% chance of a 50 bp cut in September.

US unemployment rate chart

Nasdaq 100 technical analysis

In last week's update here, we noted that after a strong rally from the August lows, we believed the next significant move for the Nasdaq 100 was a 50/50 proposition.

Fast forward to this week, and we suspect that the correction in the Nasdaq 100 from the July 20,690 high is not complete and could move lower towards the 18,000/17,800 support area, coming from the 200-day moving average and uptrend support from the December 10,671 low.

As such, we have moved to a tactical short view in the Nasdaq 100, targeting a move to the 18,000/17,800 support area with a stop loss on a daily close above the August 19,938 swing high.

Nasdaq 100 cash daily chart

S&P 500 cash technical analysis

In last week’s update, we were uncertain about whether the S&P 500 would test and break the July 5669 record high or pull back first.

As we start a new week, the jury remains out, and we are content to stay on the sidelines and reevaluate after Friday's non-farm payrolls data.

S&P 500 daily chart

• _{Source: TradingView. The figures stated are as of 2 September 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.}