Wall Street: S&P 500 marks third weekly decline amid economic concerns

A tepid performance on Friday saw the S&P 500 lock in a third consecutive week of declines on the back of higher yields, resilient economic data, and renewed concerns over the Chinese economy. For the week, the Nasdaq shed 2.33%, the Dow Jones finished 2.21% lower, and the S&P 500 lost 2.11%.

Over the weekend, Chinese authorities met to discuss concerns over the economy. Reports suggest major bank lenders were instructed to intensify credit expansion, explore new growth points for credit loans, and adjust and optimise real estate credit policies. Whether there is enough substance in the headlines to mask the disappointment of today's modest 10 bp rate cut to the 1-year Loan Prime Rate remains to be seen.

This week the key events in the US will be ISM manufacturing, an earnings report from AI poster child Nvidia, and the annual central banker Jackson Hole Economic Symposium.

Expectation for Jackson Hole

Jackson Hole event: 24th to 26th August, 2023

This year, the Jackson Hole Economic Symposium title is "Structural Shifts in the Global Economy." The title opens up discussion on several topics, including deglobalisation, the green transition, the neutral rate, artificial intelligence, larger fiscal deficits, and remote work.

Fed Chair Powell and ECB President Lagarde are both expected to speak. While no new signal on monetary policy is likely, given that both central banks are data-dependent, there is a risk that the run of robust US economic data may see a more hawkish tone emerge, particularly from Fed Chair Powell's speech.

Key points from Fed Chair Powell may include

• Reinforcing the Fed's commitment to the 2% inflation target within a reasonable time
• Acknowledging the progress made in reducing inflation, but also noting that core inflation remains sticky and well above the target, and that the Fed will see the job through
• Reiterating that interest rates will remain high for as long as it takes to see inflation return towards the inflation target

Key Points from ECB President Lagarde may include

• Reiterating comments from her speech at the Council on Foreign Relations that a more fragmented economy may lead to instability and supply issues
• Reiterating comments from her speech at Sintra that higher rates are needed to stifle persistent inflation.

S&P 500 technical analysis

In late July when the S&P 500 was still trading above 4600, we wrote:

"We remain uninterested in chasing the rally at these elevated levels and note that a break of support at 4555/50 would indicate that a pullback towards 4500, with scope to 4400, is underway."

The correction in the S&P 500 from the 4634.50 July high made fresh lows on Friday at 4350 before some position squaring took place ahead of the weekend. While the recovery could extend in the short term, particularly in the run-up to the Jackson Hole symposium, the downside correction appears to have further to go.

As such, we look for a test of the uptrend support near 4225 in the coming weeks, and if signs of a foundational base are observed near the 4225 level, we will likely move to a more positive bias on the index.

S&P 500 daily chart

Nasdaq technical analysis

In last week's update, we noted that providing the Nasdaq remained below resistance at 15,500/600, we expected the correction to deepen towards the late June 14,853 low and that a break of support at 14,853 would then open up a move towards the trend channel support at 14,500.

After Friday's sell-off found support at 14,609 (just 100 points above key trend channel support from the Jan low), we believe that the pullback in the Nasdaq is close to completion for now. Providing the Nasdaq holds above support at 14,500 (closing basis), a rebound back towards resistance initially at 15,340 is likely.

Nasdaq daily chart

Dow Jones technical analysis

In last week's update, we noted that the Dow Jones was vulnerable to a deeper pullback towards a cluster of support at 34,500/250, with the potential to test uptrend support (then at 34,000) from the October low of 28,660.

After Friday's sell-off found support at 34,263, just above uptrend support (now around 34,100), we believe that the pullback in the Dow Jones is close to completion for the time being.

Providing the Dow Jones holds above support at approximately 34,100 (on a closing basis), a rebound back towards resistance initially at 35,000 is likely.

Dow Jones daily chart

• _{TradingView: the figures stated are as of August 21, 2023. 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.}