Wall Street: tech-driven Nasdaq surges while S&P 500 and Dow fall

On Friday, the Nasdaq marked its fifth consecutive record closing highs driven by the tech frenzy. In contrast, the S&P 500 and the Dow Jones closed marginally lower, reacting to June's soft Michigan Consumer sentiment reading.

For the week, the Nasdaq gained 3.47%, the S&P 500 gained 1.58%, and the Dow Jones lost 209 points (-0.54%). The divergence in these weekly numbers provides a clear insight into the market dynamics, indicating where long and short positions are working best in US equity indices.

Consumer sentiment and inflation data

Friday night's data indicates the preliminary University of Michigan Consumer sentiment index fell for a third straight month. It fell to 65.6 rather than the expected 72, the lowest since November. The current conditions and expectations subindices both fell while five-year inflation expectations increased to 3.1% from 3%.

The decline in consumer confidence suggests that the resilience of the American consumer and the US economy are being tested. As households run down their savings to combat higher interest rates and cost-of-living pressures. Keeping in mind, consumption spending accounts for about two-thirds of the US GDP. Hence the saying, "As the US consumer goes, so goes the US economy."

Federal Reserve

With the Fed now out of the blackout period, Fed Members Mester and Goolsbee noted that last week's cooler inflation data was welcome news. However, they want to see a few more months of cooler inflation data before cutting rates. Similar thoughts can be expected to be echoed by most of the sixteen Fed members scheduled to speak this week.

Key economic events

Aside from the busy lineup for Fed Speakers, the key events this week will be Retail Sales and S&P Global Flash PMIs, on Tuesday and Friday respectively. The rates market starts this week pricing in a 68% chance of a 25 bps Fed rate cut in September, and a full 50 bps of Fed rate cuts before year-end.

S&P 500 technical analysis

The S&P 500 secured its seventh weekly gain in eight weeks, starting this week by eyeing resistance in the 5500 area. Should the rally extend above 5500, there is blue sky until trend channel resistance around 5670, which is almost another 4.5% higher than the current price.

On the downside, there is a band of initial support at 5370/40 and below that support from the March 5260 high. However, the more important layer of support is at 5225 coming from the uptrend support from the October 4103 low. A sustained break below here in addition to the May 5191 low, would indicate that the uptrend has run its course and that a deeper pullback is underway towards support at 5000/4950.

S&P 500 daily chart

Nasdaq 100 technical analysis

Following its month-end rebalancing-related sell-down into the end of May, the Nasdaq 100 extended gains last week. With the rally extending well into overbought territory, this warns that the chances of a pullback are increasing. Yet, we may first see a test of the trend channel resistance at 20,000 as the melt-up intensifies before a pullback commences.

On the downside, there is initial support at 19,000/18,900 and then the March highs 18,450 area. However, the more important layer of support is at 18,200/000, coming from the uptrend support from the October 14,058 low and the 18,189 swing-low of May. A sustained break below both these levels would indicate that the uptrend has run its course and that a deeper pullback is underway towards support of 17,000.

Nasdaq daily chart

• _{Source: TradingView. The figures stated are as of 17 June 2024. 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.}