A new month means new impulse for US equity markets; will the rally continue?

US equity markets have started March on a firmer footing, supported by optimism that the Federal Reserve won’t raise interest rates past the levels already priced into markets.

All eyes now turn to Fed Chair Powell’s Testimony to Congress (scheduled for Wednesday, 2 am Sydney time) and whether the run of robust economic data viewed in January will see the Fed Chairman open the door to a 50bp rate hike in March.

While a small number of Fed hawks have discussed the possibility of a 50bp rate hike (there is 31bp currently priced for March), the centre of the committee has expressed a preference for a more extended sequence of 25bp rate hikes.

Therefore, the Fed Chair will likely look through January’s robust data (the result of unseasonably warm weather), and while he will continue to sound hawkish, it is unlikely he will open the door to a 50bp rate hike.

Of course, should Friday’s non-farm payrolls and next week’s CPI be much hotter than the expected 215k and 0.4%, it may push the FOMC towards a 50bp rate hike in March.

This situation is made more unstable as the February CPI release next week occurs during the FOMC blackout period which will prevent policymakers from pre-signalling a more hawkish view.

S&P 500 technical analysis

Technically the S&P 500’s rebound last week from the 200-day moving average at 3950 has been a positive development and is in line with our central view.

Providing the S&P 500 remains above the 200-day moving average at 3950 (closing basis), we continue to give the rally from the October low (viewed as countertrend or corrective) the benefit of the doubt, looking towards the August 4327 high.

Aware that should the S&P 500 see a sustained close below 3950ish, it would confirm that the rally from the October lows has been corrective, and the downtrend has resumed.

S&P 500 daily chart

Nasdaq technical analysis

Technically the Nasdaq’s rebound last week from the 200-day moving average at 11,944 has been a positive development and, like the S&P 500, is in line with our central view.

Providing the Nasdaq holds above 11,944 (closing basis) and allows the rally from the October lows to take another leg higher in March towards the August 13,740 high.

Furthermore, a sustained close back below the 200-day MA at 11,944 would confirm that the rally from the October lows has been corrective and the downtrend has resumed.

Nasdaq daily chart

Dow Jones technical analysis

The Dow Jones has spent the first two months of 2023 consolidating its gains from the October low, above the support from the December 32,573 low and the 200-day moving average at 32,372 not to mention a good layer of resistance between 34,400 and 34,712.

This sideways price action is viewed as part of a bullish correction and aAs such, we expect to see the Dow Jones test and break its December 34,712 high, before a move towards the April 2022, 35,492 high.

It should be noted that if the Dow Jones loses the band of support 32,570/32,350 (closing basis), it would negate the bullish bias and warn that a deeper pullback is underway.

Dow Jones daily chart