S&P 500, Nasdaq, Dow Rally - Unfazed by Hawkish Rhetoric


US Stock Market Key Points:

  • The S&P 500, Dow and Nasdaq 100 close higher amid low trading volume.
  • Better-than-expected economic data and corporate earnings spur risk appetite.
  • All eyes are on tomorrow’s PCE and Powell’s speech at the Jackson Hole Economic Symposium at 10 AM ET.

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Major US indices moved in a tight range for most of the day before rallying sharply into the close, build on yesterday’s gains which snapped a three-day losing streak. Low trading volume continued today as investors await Fed Chair Jerome Powell’s speech at 10:00 EST/14:00 GMT tomorrow as part of the Jackson Hole Economic Symposium. The program is expected to be released at 20:00 EST/00:00 GMT later today.

A batch of better-than expected US data supported risk assets and helped the Dow Jones Industrial Average add +0.85%and the S&P 500 to end+1.33% higher, as all sectors in the index finished with gains. On today’s Economic Calendar,we had the initial revision to the 2Q’22 US GDP, which showed contraction at a slower pace than initially anticipated.

While US inflationary pressures continue to be elevated, personal consumption remains strong, suggesting that the data shows no clear signs of a widespread slowdown. Unemployment claims also surprised, with the data for the week ending on August 20highlighting continued strength in the labor market.

S&P 500 Futures (ES), Daily Chart

S&P 500 Futures Daily Chart Prepared using TradingView

Despite recent signs of concern in other sectors of the economy -such as in housing and manufacturing-, daily market moves remain data driven, and today’s good economic numbers gave US Treasury yields a respite, softening the USD and boosting the Nasdaq 100.

The headline US tech index ended with a +1.73% gain, which was also supported by good corporate earnings reports. Growth stocks such as Snowflake, NetApp Inc and Auto Desk all beat analysts’ expectations.

Looking ahead, tomorrow we will have the July PCE release prior to Powell’s speech at Jackson Hole. So far there has been a disconnect between market movements and Fed rhetoric. Investors have behaved as if the FOMC has pivoted from a hawkish stance due to one lower than expected inflation reading (amid lower gas prices) and cooling in certain sectors of the economy.

It is possible that Powell may retract that premature posture, as it seems too early to predict whether inflation is indeed on a downward trend. But what is noteworthy is that Fed speakers continue to make hawkish statements in the midst of a tight labor market. Today, Kansas City Fed President Esther George said that unemployment has to rise and reiterated that the main objective is to get inflation back on target.

Markets are now forecasting a 60.5% chance of a 75-basis point rate hike in September. We will see how this changes tomorrow.

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—Written by Cecilia Sanchez-Corona, Research Team, DailyFX





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