S&P 500 rises despite disastrous US economic data, but recession fears may rise -by Ecork

US stocks overview:

  • The S&P 500 rose 0.95% to 3,795, but was still trapped in bear market territory.
  • Despite the rally late in the day, sentiment is fragile amid signs that the US economy is slowing fast and strongly.
  • End-quarter rebalancing activity may support stocks in the coming days, but gains may be short-lived amid heightened uncertainty.

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After underperforming for most of the day, US stocks managed to make a surprise rally late in the day, with the S&P 500 Index rising 0.95% to 3,795 backed by moderate strength in the technology sector. Although the stock index came close to breaking out of its bear market territory, it was not able to do so, as the buying pressure was insufficient to push prices above the 3800 area decisively. Despite the progress made today, there is no reason to be particularly optimistic at this point, as the outlook remains bleak for risky assets with increasing signs of problems in the economy.

Concern on Wall Street increased after macroeconomic data in the United States showed a sharp slowdown in economic activity at the end of the second quarter, raising the possibility of a further contraction in gross domestic product in that period. For context, the S&P Global Composite PMI, which tracks business trends across the manufacturing and services sectors, fell to a five-month low of 51.2 in June, barely managing to stay in the expansionary terrain amid stagnation in demand.

With deflation fears dominating sentiment, US Treasury yields began to slide across the curve from recent highs on bets on The Fed will blink at some point and reverse course once the economic carnage becomes unbearable.

So far, there is no indication that the US central bank will pivot and slow the tightening cycle despite several headwinds ahead. Conversely, Fed Chairman Powell doubled down on hard-line rhetoric during his testimony to Congress this week, noting that policymakers have an unconditional say. Commitment and determination to restore price stabilitya sign that the bank will do whatever it takes to tame inflation.

Focusing on upcoming potential catalysts, the US economic calendar will be light on Friday, but there will be several high-impact events next week, including the release of durable goods orders, consumer confidence for June and PCE data may.

As the second quarter draws to a close, Money rebalancing, a practice that involves readjusting portfolio weights by buying or selling assets to bring allocation ratios back to predetermined levels, may stimulate stock buying activity and fuel a late-month rally on Wall Street. However, any gains could be temporary amid reduced risk appetite ahead of the next earnings season, when companies could start issuing negative profit warnings and lowering their expectations.

S&P 500 Technical Analysis

The S&P 500 fell aggressively last week and hit a new low for the year, but failed to break the 3700-3665 technical support. If this floor continues and prices continue their slow upward journey, the bulls may be encouraged to jump again, but to trust That the worst is over, we need to see a clear break above 3810, followed by a move above 4000.

On the other hand, if the sellers regain control of the market and push the index below 3,700/3,665, all bets are off. Under this scenario, the bearish pressure could strengthen, paving the way for a slide towards the 3500 area, a pivotal support created by the 50% Fibonacci retracement of the 2020/2022 rally.

S&P 500 تقني Technical Chart

S&P 500 daily chart created using TradingView

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