S&P500 (SPX) Price Analysis – July 12, 2024
Daily Price Outlook
During the European trading session, the S&P 500 index failed to extend its previous upward trend and turned bearish around the 3,584 level, reaching an intraday low of 3,576. The downturn was driven by escalating political tensions in the US and internationally.
Additionally, softer-than-expected US consumer inflation figures raised expectations that the Federal Reserve might cut interest rates in September. Initially, sectors that typically benefit from lower rates saw gains, but technology stocks within the S&P 500 index faced declines as well.
Looking ahead, traders are currently attentive to the upcoming releases of the US Producer Price Index (PPI) and the University of Michigan Consumer Sentiment survey during the North American session.
These data points are anticipated to provide significant market cues, influencing investor sentiment and potentially impacting market movements.
Impact of US Economic Data and Federal Reserve Expectations on the S&P 500
On the US front, the broad-based US dollar rebounded from a nearly three-month low despite expectations of a September rate cut by the Federal Reserve, driven by softer inflation figures.
This recovery was bolstered by a rise in US Treasury bond yields and encouraging Initial Jobless Claims, which declined to 222,000 for the week ending July 6. According to the CME Group's FedWatch Tool, investors now perceive a 90% likelihood of a rate cut in September.
Furthermore, Federal Reserve officials indicated that improved inflation metrics could warrant one or two rate reductions this year, though they remain cautious regarding recession risks.
In economic data, the US Consumer Price Index (CPI) recorded its first decline in June in over four years, with the annual rate easing to 3% from May's 3.3%.
Core CPI, excluding volatile food and energy prices, increased by 0.1% for the month and by 3.3% year-over-year, falling short of expectations. As a result, investors now perceive a greater than 90% probability of a rate cut in the near term.
Therefore, the S&P 500 initially responded favorably to expectations of a September rate cut driven by softer inflation data, benefiting sectors sensitive to lower rates. However, gains were limited by the strength of the US dollar, which tempered overall market gains.
Impact of Political and Geopolitical Factors on the S&P 500
On the other hand, the increasing political uncertainty in the US and Europe is adding pressure to global markets sentiment. Simultaneously, escalating geopolitical tensions are negatively impacting market sentiment, raising concerns about energy prices and trade disruptions.
These factors, combined with worries over a global economic slowdown amid inflationary pressures, have contributed to the current bearish trend in the S&P 500. Investors are closely monitoring central bank responses and geopolitical developments, which could further influence market sentiment and the index's performance in the months ahead.
S&P 500 - Technical Analysis
The S&P 500 has edged lower, closing at 5584.55, a 0.88% decline for the day. This pullback has brought the index to a critical juncture, testing the immediate support level of $5562.89. If this support holds, it could signal a potential rebound, with the 50-day Exponential Moving Average (EMA) at $5519.53 acting as a further cushion.
However, a breach of this support could open the door for a deeper correction, potentially targeting the $5539.43 and $5521.00 support levels.
The Relative Strength Index (RSI), currently at 58, indicates that the market is neither overbought nor oversold.
This suggests that the recent decline may be a temporary consolidation rather than a full-fledged reversal. However, a further drop below 50 would raise concerns about the sustainability of the current uptrend.
Investors should closely monitor the price action around the $5562.89 support level. A decisive bounce could present a buying opportunity, targeting the $5615.00 pivot point.
However, a break below this level would likely trigger further selling pressure, warranting caution and potentially prompting a reassessment of the bullish outlook.
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