- Market Outlook : S&P 500 Eminis falls below 3,900; USDJPY rises above 132.00
- The Q4 GDP update in the last session beat expectations, and the Fed’s inflation indicator (PCE deflation index) will be released on Friday
- Between the progress of certain risky assets (such as the Nasdaq 100), significant restrictions on the Dollar and the risk of a serious event next week
When we approach a market with preconceived biases, there will often be evidence that we can choose to justify our views. I do not claim to have a clear vision of what the next leg of the financial system will look like, but I believe there is considerable hesitation with reason to expect further uncertainty over confidence in the near future. That view is shaped not by the technical signs of the asset nor through a sense of fundamental focus, but something more rudimentary: the greater weight of anticipation on event risk is more important ahead than the lackluster backdrop for the belief we are currently addressing.
That will be something to keep in mind as we move into Friday and even into early next week. Some major US indices have made significant technical progress while the Dollar is overdue to break out of an extremely narrow range. However, those conditions do not redefine the context of the broader market.
Judging by where sentiment seems to be consolidating behind a differentiated gauge, US indices have begun to notice the dynamics that global indices (e.g., DAX, FTSE 100, Nikkei 225) and ‘risk assets’ substitute (e.g., emerging markets, junk bonds, etc.) was starting to get stuck. The S&P 500 has densely strengthened the bulls for the longest time with the progression of a breakout of the 200-day SMA, a breakout of the trendline in 2022, and then erosion of long-term Fib levels around the 4,000 level over the past few weeks. As Thursday draws to a close, there seems to be more confidence from the bulls than any attempt so far. A higher gap at the final opening will continue to follow the tune of a 1.1 percent increase on the day.
We seem to have escaped the gravity of the 4,000 level, but does that really open the door for the bulls?
Perhaps a better reflection of market fundamentals and conditions is through the chart of the DXY Dollar Index. The trade-weighted representative of the greenback has shown that reticence towards commitment is nothing unusual.
While technically, the DXY has inched a bit further from its 7-month lows past the 50% retracement level of the 22-month rally in just 4 months, there’s really no significant progress to talk about the bears’ progress over two weeks. In fact, the 10-day historical range from DXY (as a spot percentage) is only comparable to holiday conditions at the end of 2022, and before that, we have to go back to February to find anything comparable. This is the patience — or freezing anxiety — waiting for a more decisive and competent driver.
While the S&P 500 fought hard for profits, the Nasdaq 100 was in a much better position to wake up opportunists. The tech-heavy index served as a speculative torch during key stages of an escalation that lasted more than a decade after the Great Financial Crisis — and again during the initial spike after the pandemic collapsed.
More recently, it underperformed the broader S&P 500 or Russell 2000 and is certainly the ‘value-oriented’ Dow Jones Industrial Average. Ignoring that inculcated bearish trend, this week saw a break of the 2022 bearish trend on Monday; and this past session, the spread rally pushed the Nasdaq above the 200-day SMA for the first time in 203 days of trading.
That ended a period of trading in the market below this highly recognizable technical measurement for two decades. For someone who mostly follows the charts, this actually seems very provocative. However, under these conditions, our assessments should be based on broader readings.
Rising stocks in the past session will naturally make those who are looking for justification to withdraw money from the underlying well. Beating Q4 GDP from the United States would certainly serve that purpose well. The annual growth rate of 2.9 percent was faster than the 2.6 percent expected, but not far from the market.
Moreover, much of the debate about an impending recession seems to have originated in the second half of the year. We won’t be clear on that anytime soon — unless we have the NBER issuing a definitive ‘recession’ call (with no obvious ‘all clear’ signs).
While GDP and other data indicated the day were encouraging, it hardly solved the market’s problems of a definitive shift in the direction of optimism. That’s especially likely to happen when there’s so much risk of a serious event potentially shifting the needle in the week ahead. So, although there is another top event coming up for the last trading day of this week (PCE deflation indicator), it would be wise to limit your expectations about the magnitude of its impact.