S&P 500 Momentum Report

Market await more cues from corporate earnings and Fed’s policies

Wall Street kicked off the second half of the year on a quieter tone, as risk sentiments reel in from some resilience in the US dollar and a surge in Treasury yields. This comes as markets began pricing for higher odds of a Trump presidency following the recent US presidential debate, with his economic agenda is likely to be inflationary.

For one, his plan for immigration could limit labour supply and drive upside risks to wage pressures, while aggressive tariffs on trading partners like China could drive higher import prices, both of which could complicate the Federal Reserve (Fed)’s fight against inflation at a time where pricing pressures are still above target.

Ahead, attention will be refocused back on the upcoming earnings season, with further earnings recovery on watch to sustain the risk rally. Expectations are for 2Q S&P 500 earnings to grow 8.8% from the previous year, which will mark the highest growth rate since Q1 2022. This month will also conclude with the next Federal Open Market Committee (FOMC) meeting. While interest rates are likely to remain unchanged in July, the Fed’s guidance will be heavily scrutinised to validate broad expectations for the Fed’s easing process to kickstart in September this year.

Nasdaq 100: Near-term breather within broader rising channel pattern

The Nasdaq 100 index are locked in some near-term indecision between the 19,500-20,000 range, as technical conditions moderate from previous overbought levels while markets await cues from corporate earnings and Fed’s policies to drive greater moves. Some cooling of upside momentum is presented for now with the bearish crossover on its daily moving average convergence/divergence (MACD), alongside lower highs on its daily relative strength index (RSI). That said, the broader upward trend remains intact, as the index trades within a rising channel pattern since October last year.

Any break of the near-term range will be one to watch. Failure to defend last week’s low at the 19,500 level may call for further retracement towards the 18,932 level next. On the other hand, a break above the key psychological 20,000 level may suggest buyers taking greater control, which may leave the 20,427 level on watch, where the upper channel trendline resistance stands.

Levels:

R2: 20,427
R1: 20,000

S1: 19,500
S2: 18,932

Source: IG charts

S&P 500: Key 5,500 level being retested

After extending its rally by close to 11% since April this year, the S&P 500 came to a near-term breather below the 5,500 level. Its daily RSI has eased from overbought conditions, which may likely leave any retest of the mid-line on watch for any continuation of its prevailing upward trend. A move above the 5,500 level of resistance could signal buyers taking greater control, which may leave the 5,800 level on watch next. This is where the upper channel trendline resistance potentially resides. On the downside, any retracement may potentially see a retest of the 5,330 level, where its previous consolidation phase stood.

Levels:

R2: 5,800
R1: 5,500

S1: 5,330
S2: 5,187

Source: IG charts

Sector performance

Returns over the past week were concentrated on growth sectors once more, as outsized gains in the Magnificent Seven stocks continue to do the heavy-lifting for the broader index. A 5.2% gain in Nvidia and 4.1% gain in Apple helped to drive technology as the top-performing sector, while the consumer discretionary sector got a lift from Amazon (+6.3%) and Tesla (+14.9%). Other Magnificent Seven stocks shone as well, with Microsoft and Alphabet up 2.0%, and Meta up 1.2%. Strength was not broad-based across all sectors however, with market participants clearly look for a safer bet by leaning towards the artificial intelligence (AI) theme, while uncertainty around Fed’s policy and cooling economic conditions continue to weigh on the rest. The materials and utilities sectors closed more than 3% lower, coming in at the bottom of the performance table.

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 25th June – 1st July 2024.

Source: Refinitiv
*Note: The data is from 25th June – 1st July 2024.

Source: Refinitiv
*Note: The data is from 25th June – 1st July 2024.