Inside Markets — Technical Resistance pt2

The S&P 500 (SPX) is currently trading above technical resistance near 4565. Closing levels north of 4567 would likely deliver increased upside momentum and a test of highs near 4794. The fundamental outlook has definitely improved since late May with better macro data and better earnings.  The Q2 earnings season is coming in better than expected with the SPX beat rate recently lifting above the 5-year average. On the other hand, the index is technically overbought, positioning is no longer supportive and sentiment has reached bullish extremes.

The dovish tilt from the press conference came from Powell’s endorsement of a data dependent approach when asked about a September rate hike.  When asked the same question in June, Powell referenced the dot plot that forecasted two more rate hikes. The data dependent approach coupled with the Fed Staff no longer forecasting a recession drives the soft-landing narrative and risk-on sentiment this morning. Recent data including last week’s retail sales, Monday’s manufacturing PMI and Tuesday’s Consumer Confidence report takes the US Economic Surprise Index (ESI) to its best level since the March ’21 inflation spike.

The most important data to follow ahead of the September 20 Fed policy decision includes: 1) the Employment Cost Index due tomorrow; 2) Job Reports on August 4 and September 1; 3) CPI reports on August 10 and September 13.