Wall Street: US markets hit record highs amid cooling inflation and Fed speculations

Last week, the S&P 500 and the Nasdaq reached fresh record highs, while the Dow Jones closed above 40,000 for the first time, locking in its fifth straight week of gains.

Cooler US inflation data fuelled last week's record-breaking run, bolstering hopes of Fed rate cuts this year. The Nasdaq added 2.12%, the S&P 500 gained 1.54%, and the Dow Jones added 490 points (1.24%).

Taking some gloss off Wednesday's post-CPI euphoria, import prices on Friday night rose 0.9% MoM in April, the most since March 2022, accelerating from an upwardly revised 0.6% gain in March. Nonetheless, the US rates market started the week pricing in a 70% chance of a 25 basis points (bp) Fed rate cut in September.

While there is now a lack of tier one macro data, until Core PCE inflation data on the 31 of May, there is still plenty to keep traders busy this week, including the Feds meeting minutes, flash PMIs, durable goods, and a roster full of central bank’s speakers. On Thursday morning at 7:00am, AI super stock Nvidia's earnings are scheduled to drop, which my colleague Hebe Chen previews here.

What is expected from FOMC meeting minutes

Date: Thursday, 23 of May at 4am AEST

At its meeting in May, US policymakers kept interest rates unchanged at 5.25%-5.50% as widely expected. Fed Chair Jerome Powell indicated a high threshold for additional rate hikes. However, he also highlighted a "lack of further progress" towards the Fed's inflation objective, which needs to be seen before considering rate cuts. This has been echoed by a slew of Fed officials' comments lately, with the high-for-longer rate outlook likely to be reiterated in the upcoming minutes.

The minutes will be slightly backward-looking, given that they will not factor in the recent patch of softer economic data, including weaker-than-expected jobs growth and cooler inflation data, which has bolstered hopes of Fed rate cuts before year-end. Nevertheless, clues will be sought from the minutes on the timeline for possible rate cuts and policymakers' views on the inflation and growth outlook.

S&P 500 technical analysis

Last week's surge in the S&P 500 cash above the March high of 5264 negated the view that the correction viewed in April was missing a final leg lower and, in theory, suggests the uptrend has resumed towards 5400.

However, before that can occur, the S&P 500 must first see a weekly close above the weekly trendline resistance at 5300/25is, which comes from the 4818 high of January 2022 and picks up the March 5264 high. On the downside, a break below 5150/20ish, the same level we leaned against in March and April, would indicate that the rally has run its course.

S&P 500 weekly chart

Nasdaq technical analysis

Last week's surge in the Nasdaq cash above the March high of 18,464 negated the view that the correction viewed in April was missing a final leg lower and, in theory, suggests the uptrend has resumed towards 19,000.

However, before that can occur, the Nasdaq must first see a weekly close above the weekly trendline resistance at 18,650/70ish, which comes from the 16,764 high of November 2021 and picks up the March 18,464 high. On the downside, a break below 17,750, the same level we leaned against in March and April, would indicate that the rally has run its course.

Nasdaq weekly chart

• ^{Source: Tradingview. The figures stated are as of 20 May 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.}