S&P 500 Momentum Report

S&P 500, Nasdaq drifted to all-time closing high to start the week

A drift higher in Wall Street overnight places the S&P 500 and Nasdaq in an all-time closing high, but reservations should remain in place as we look towards a series of key economic event this week, which can significantly move the dial around the Federal Reserve (Fed)’s policy path ahead.

This week will see the release of US inflation numbers on Wednesday, before the Federal Open Market Committee (FOMC) meeting decision the next day. With inflation progress having stalled around the 3.0% - 3.5% range over the past months, it does not seem to provide the conviction for the Fed to deliver earlier rate cuts.

Expectations are for US May headline inflation to edge slightly lower to 3.5% from previous 3.6%, while the core aspect is expected to stay unchanged at 3.4%. Month-on-month, the core consumer price index (CPI) is expected to come in at 0.3%, unchanged from April as well.

It may have to take a significant downside inflation surprise to reassure the Fed that they have room to deliver more rate cuts this year, otherwise it may seem that one rate cut in November/December could be the timeline as what market rate expectations are priced for currently.

Nasdaq 100: Formation of new higher high

The Nasdaq 100 index continues to extend its rally to a fresh record closing high, reinforcing its prevailing upward trend as big tech stood resilient amid the high-for-longer rate narrative. A broader ascending wedge pattern seems to be in place, which may place the 19,300 level on watch as potential resistance, where the upper trendline resides. Thus far, the daily relative strength index (RSI) has been trading above the key 50 level, but given the lower-highs formation which may leave a near-term bearish divergence in place, some indecision may be persist for now. On the downside, the 18,950 level may serve as immediate support to hold, where it marked the previous post-earnings dip.

Levels:

R2: 20,000
R1: 19,300

S1: 18,950
S2: 18,500

S&P 500: Upward trendline support on watch

The S&P 500 has a stellar recovery as well, closing at its highest record level and once again, showing that any dip is a temporary retracement within a broader upward trend. A broader rising channel pattern can be looked upon as reference for its upward trend, with its daily RSI successfully defending the mid-line at the end of May. That said, similar to the Nasdaq 100 index, its RSI has failed to make a higher high despite the index doing so, which may leave some near-term caution in place. Any retracement may leave the 5,260 level on watch, where the broader channel pattern may continue to hold.

Levels:

R2: 5,600
R1: 5,485

S1: 5,260
S2: 5,000

Source: IG charts

Sector performance

The S&P 500 has delivered yet another fresh record closing high over the past week, once again riding on strength in growth sectors to edge 1.5% higher. Big tech stocks remained the heavy-lifters, with Nvidia (+5.9%) leading the pack, while Meta (+5.3%), Amazon (+4.9%), Microsoft (+3.5%) and Alphabet (+1.3%) were all broadly higher. Apple (-0.5%) and Tesla (-1.4%) are the laggards among the Magnificent Seven stocks last week. Market breadth for the S&P 500 (% of stocks above 50-day, 100-day and 200-day moving average) continues to display lower highs, which marked a divergence with the index and suggests that we may have to see some broadening in strength for rally sustenance ahead.

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 4th – 10th June 2024.

Source: Refinitiv
*Note: The data is from 4th – 10th June 2024.

Source: Refinitiv
*Note: The data is from 4th – 10th June 2024.