Wall Street update: US indices rebound ahead of tech earnings, FOMC, and NFP

Wall Street update

Despite gains on Friday night following favourable PCE inflation data, last week's Wall Street narrative centred on position unwind and sector rotation—out of tech stocks and into small caps and blue chips.

Political developments impacting markets

On the political front, while the weekend was relatively calm compared to the previous two, significant developments have emerged in the presidential race. Recent polls conducted after Biden's withdrawal show Kamala Harris in a tight race with former President Trump.

The likelihood of a Republican sweep has decreased to approximately 35% from a previous high exceeding 50%. At this stage, these political shifts are more likely to impact specific sectors rather than have broad macroeconomic implications. However, the presidential race remains fluid, with the potential for further twists and turns before the race is won.

Economic indicators and rate cut expectations

In economic news on Friday, headline PCE inflation edged up 0.1% month-on-month (MoM) in June, allowing the annual rate to fall to 2.5% from 2.6% prior. Core PCE rose by 0.2% in June, above expectations of 0.1%, to keep the annual rate steady at 2.6% in June. The rates market is fully priced for a 25 basis point (bp) rate cut in September, with 66 bp of rate cuts priced before year-end.

Upcoming economic events and earnings reports

This week's economic calendar includes an FOMC meeting (previewed below), non-farm payrolls, JOLTS job openings, and ISM manufacturing PMI. Elsewhere, the US Q2 2024 earnings season continues, with earnings scheduled from companies including tech giants Microsoft, Meta, and Apple.

FOMC meeting

Date: Thursday, 1 August at 4.00am AEST

At its last meeting in June, the FOMC kept the Fed Funds rate unchanged at 5.25%-5.50%. Providing a hawkish surprise, the median dot for 2024 was revised up from the March projections to reflect just 25 basis points (bps) of cuts in 2024 vs. 75 bps previously.

The July FOMC meeting is expected to see the Fed keep rates unchanged at 5.25%-5.50%. Following a run of cooler inflation data, Fed Chair Powell is expected to sound dovish and indicate that the Fed's confidence level is increasing that inflation will return to target. Fed Chair Powell may also signal that a first rate cut is imminent. The US interest rates market is fully priced for a 25 bp rate cut in September, with 66 bps of rate cuts priced before year-end.

Fed funds rate chart

Nasdaq 100 technical analysis

In our Wall Street update from 15 July, we noted the formation of a weekly "loss-of-momentum" candle. We stated that the formation of a "loss-of-momentum" candle is a warning sign awaiting a trigger to indicate that a correction is underway. In this case, we mentioned the trigger would be downside follow-through below 20,000.

After breaking below 20,000 and daily uptrend support at 19,500/19,400, the Nasdaq 100 found buyers on Friday, operating ahead of uptrend support and March highs in the 18,600/18,400 area. At this point, there is no clear evidence of downside capitulation, which would increase confidence that a tradable low is in place at 18,721 and that a stronger rebound is underway.

However, provided the Nasdaq remains above support in the 18,600/18,400 area (on a daily closing basis), we think the Nasdaq has either bottomed or is close to bottoming and expect the uptrend to shortly resume. Be aware that a sustained break below 18,600/18,400 would warn that a deeper decline is underway towards the 200-day moving average at 17,667.

Nasdaq 100 daily chart

S&P 500 technical analysis

The S&P 500's decline last week saw it post a daily close below uptrend support at 5400 (from the October 4,103 low) before a bounce on Friday saw it return to the safety of its nine-month bullish trend channel. At this point, there is no clear evidence of downside capitulation, which would increase confidence that a tradable low at 5390 is in place and that a stronger rebound is underway.

However, provided the S&P 500 remains above the support 5400/5390 area (on a daily closing basis), we think the S&P 500 has either bottomed or is close to bottoming and expect the uptrend to shortly resume.

Be aware that a sustained break below 5400/5390 would create significant technical damage to the uptrend and warn that a deeper pullback is underway to 5250/5200.

S&P 500 daily chart

• _{Source: TradingView. The figures stated are as of 29 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.}