US equity Indices Update – where are dip buyers likely to emerge?

US equity markets eased lower into the weekend as traders booked profits after an astonishing run higher ahead of the Juneteenth holiday in the US (tonight). For the week, the Nasdaq gained 3.82%, the S&P500 added 1.81%, and the Dow Jones added 422 points (+1.25%).

Last week's rally on Wall Street came on the back of a low consumer price index (CPI) reading and the Federal Reserve (Fed) pause that the equity market hopes signals the end of the Fed tightening cycle. Not to mention another phenomenal week for AI-related mega stocks Nvida (+10.12%), Microsoft (+4.76%), and Apple (+2.19%).

Despite equity market optimism, the rates market isn't buying into the idea that the Fed has ended its tightening cycle. As recent Reserve Bank of Australia (RBA) and Bank of China (BoC) meetings showed, a "pause" is only good if the data that follows cools.

The US rates market is pricing in a 75% probability (20 basis point <bp>) of a 25bp rate hike at the July meeting. This week's key events in the US will be Fed Chair Powell's Testimony to Congress and Flash purchasing managers index (PMI) for June.

What is expected from the Flash PMI?

In May, the S&P Global US Composite PMI rose to 54.3, above April's final reading of 53.4, for the fastest expansion rate in over 12 months.

The rise was driven by gains in the services sector which helped offset continued softness in the manufacturing sector.

For June, a slight fall is expected in the composite to 53.5, driven by moderation in the services PMI, following a slowing in the Institute Manufacturing Index's (ISM) services survey. Nonetheless, a print of 53.4 would still reflect solid growth in the private sector.

S&P500 Technical Analysis

Last week the rally in the S&P500 extended into overbought territory before running into some profit-taking on Friday ahead of the Juneteenth long weekend.

Should the pullback develop, it will likely find support from buyers towards the August 2022 4325 high and again at 4250, looking to position for the next leg higher towards 4600.

Aware that only a sustained break below support at 4165 (SPX) and 4180 in the continuous futures contract would negate the positive medium-term outlook.

Nasdaq technical analysis

Last week the rally in Nasdaq reached the next upside target, the 15,265 March 2022 high, before running into some light profit-taking ahead of the Juneteenth long weekend.

We expect AI mania to remain a driver of the Nasdaq in the months ahead, with the technology still too early in its lifecycle to disappoint relative to expectations.

As such, we expect dip buyers to emerge towards a band of support at 14,500/14,250 and again at 14,000.

Dow Jones technical analysis

In last week's update, we noted that while the Dow Jones had made upside progress, there was "still much wood to chop," including the December 34,712 high.

The December 34,712 high remains the last band of resistance preventing the Dow Jones from setting up a test of the 35,492 high (from April 2022) before a run at the all-time 36,952 high. And until that occurs, the Dow Jones will likely continue to flounder in the shadows of the S&P500 and the Nasdaq.

On the downside, the Dow Jones is expected to find good support initially at 33,500 and then from the 200-day moving average, currently at 32,808.

The figures stated are as of June 19th, 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.