The S&P 500 and Nasdaq 100 both surged this week, moving closer to recapturing its 2023 highs. The ongoing earnings season has played a key role in this astounding performance, inspiring renewed confidence among investors that Corporate America has weathered a difficult macroeconomic environment without suffering significant damage to quarterly profits.
The July FOMC decision looked to increase sentiment as well. While the Fed resumed its rate hike campaign and lifted rates to their highest level in 22 years, the Fed’s forward guidance was not regarded as aggressive, with Chairman Powell adopting a data-dependent attitude and declining to commit to more policy firming. This approach sparked concerns that the normalization cycle had come to an end.
Recent economic indicators contributed to the current positive atmosphere. Second-quarter GDP, initial jobless claims, consumer confidence, and durable goods orders all surprised positively, aligning with the anticipated soft landing scenario and giving traders hope that the Federal Reserve will be able to bring inflation down without causing a significant downturn.
Companies must continue to achieve favorable results in the current reporting season in order for sentiment to stay positive and premium valuations to be justified. The highlight of the week ahead, though, will be reports from mega-cap Apple and Amazon on Thursday, two of the five corporations with the greatest weighting in the S&P 500 and Nasdaq 100, and thus crucial in setting the tone on Wall Street.
AAPL is expected to earn $1.19 per share on revenue of $81.73 billion. Meanwhile, AMZN is expected to earn $0.35 per share on $131.46 billion in revenue. Given both corporations’ extensive customer connections, it is critical to keep an eye on their comments on household spending habits. Positive remark might boost the market, while negative criticism could raise concerns about the overall picture.
All eyes will be on the US job data for this month on Friday. Employers are anticipated to hire 200,000 workers in July, following a payroll increase of 205,000 in June. Meanwhile, forecasts show that the jobless rate will remain stable at 3.6%.
For investors, any headline report that nearly matches the consensus forecast is expected to boost the S&P 500 and Nasdaq 100, whilst a substantial departure on the downside, such as job data below 100,000, may have a negative impact on risk assets by reigniting recession fears.
A strong NFP report, on the other hand, may present a distinct set of issues. A print beyond 275,000, for example, might worsen the labor supply-demand imbalance, increasing concerns about a pay spiral. As a result, traders may price in greater monetary tightening for 2023, perhaps leading to a significant equities market selloff.
S&P 500 Technical Analysis
The S&P 500 has recently advanced closer to a crucial technical resistance near 4,635, where this year’s peak corresponds with the March 2022 highs and the upper boundary of a short-term rising channel. If buyers can push prices above the ceiling, positive momentum might pick up, laying the way for a probable retest of all-time highs.
If sellers recover market control and cause a bearish reversal, initial support appears at 4,555, followed by 4,500. We could see a drop to 4,415 if the market continues to fall.
S&P 500 Technical Chart