Equity markets displayed upward movement, accompanied by a retreat in bond yields, inaugurating a week that is brimming with crucial economic reports, poised to shape the trajectory of Federal Reserve policy.
The S&P 500 exhibited modest gains, maintaining proximity to the significant 4,400 threshold. Notably, trading volume on this occasion was 25% below the average recorded over the past month. A notable development was the rally of 3M Co., prompted by reports from Bloomberg News indicating the company's preliminary agreement to allocate more than $5.5 billion for the resolution of lawsuits revolving around alleged sales of defective combat earplugs. Within the realm of megacaps, fluctuations were observed, with Alphabet Inc., the parent company of Google, experiencing gains, while Nvidia Corp. encountered a downward trajectory. U.S.-listed Chinese stocks ascended, spurred by measures undertaken by China to attract investor interest.
Although the sense of risk aversion observed in August showed signs of easing, the U.S. equity benchmark is positioned to conclude this month as its most challenging in 2023. This downward sentiment was instigated by the proliferation of a narrative that implies higher interest rates are anticipated for an extended period. During his address at the Jackson Hole Symposium, Federal Reserve Chair Jerome Powell adhered to a familiar script, affirming that officials stand ready to further elevate rates if deemed appropriate, while underscoring a cautious approach guided by economic data.
Of particular significance for investors is the impending release of Friday's job data, which holds the potential to shape market sentiments.
Tom Essaye, the founder of The Sevens Report newsletter and a former Merrill Lynch trader, underscored the significance of the upcoming week. He noted that this week holds the potential to either reinforce the rallying pillars of a "soft/no landing" scenario and subdued inflation, or conversely, challenge these narratives. The former outcome is likely to trigger a reflexive rally, whereas the latter could introduce a sharp decline in stock valuations. Market participants will be closely monitoring developments.
Forecasts anticipate a moderation in U.S. employment growth and a tempering of wage increases, signifying a gradual reduction in inflationary pressures and thereby diminishing the immediate urgency for additional rate hikes. Other labor-market indicators are expected to reveal a decrease in job openings compared to the previous month, signaling a more balanced equilibrium between supply and demand. Furthermore, the Federal Reserve officials are poised to gain fresh insights into their preferred inflation metric, specifically the personal consumption expenditures price index minus food and energy components.
With the S&P 500 hovering around the 4,400 mark, observers of market charts are identifying crucial levels that could provide indications about the index's future trajectory.
Mark Newton, Head of Technical Strategy at Fundstrat Global Advisors, highlighted the pivotal level of 4,440. This threshold closely aligns with a 38.2% Fibonacci retracement derived from the dip spanning from the intraday high on July 27 to the recent low. As such, it serves as a critical barrier that the index must surmount to sustain its rebound following the decline witnessed in August.
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