A Narrow Weekly Gain After a Fed-Driven Friday Selloff

The S&P 500, Nasdaq, and Dow posted fractional weekly gains, regaining ground from the previous week’s modest declines. The S&P 500 gained 0.05% and the Nasdaq 0.09%, as stocks traded in a narrow range for the third consecutive week following a four-day rally that began on July 30.

Stock indexes wavered after Federal Reserve Chair Kevin Warsh emphasized inflation risks in a speech Friday morning at a symposium in Jackson Hole, Wyoming. With recent inflation readings remaining well above the Fed’s 2% target, Warsh said the central bank “must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.” That triggered a Friday afternoon selloff of about 1% in the S&P 500.

The modestly positive weekly results for large-cap stocks did not extend to smaller companies. The Russell 2000 Index fell 1.4% on Friday in the wake of the Fed chair’s speech.

Greater Clarity on AI and Policy Heading Into September

Although September has historically been a more challenging month for markets, traders are entering this month with greater clarity on two issues that have dominated the investment landscape. Nvidia’s earnings provided fresh evidence that the AI investment cycle remains intact, while Warsh’s Jackson Hole speech reinforced the Fed’s commitment to restoring price stability.

Recent results from several high-profile software companies helped push back against the narrative that AI will simply disrupt the software industry. Shares of Salesforce rose in response to earnings, while the broader software group has begun to recover some of the significant ground lost relative to semis over the past year. While leadership rotations among hyperscalers, semiconductors, and software are likely to continue, the latest earnings season suggests AI’s benefits may be spreading more broadly across the technology sector. After lagging the broader market since peaking in early June, the sector could be positioned for improved relative performance.

My Technical Read: The Trend Is Still Higher

Historically, September has been the weakest month of the year for stocks, producing both the lowest average return and the lowest probability of positive performance. This seasonal tendency can be amplified during midterm election years, when investors often face elevated political uncertainty.

That said, the overall technical trend is still higher until that changes. In my opinion, way too many traders believe lower is coming and are positioned that way. A massive short squeeze is definitely possible, but we await the market’s decision.

Key SPX and NDX Technical Levels to Watch

SPX support at the 7,620-40 zone, 7,565-70, 7,295-7,313, and possibly 7,050. Resistance at 7,800-81, 7,980-8,000, and possibly 8,250.

NDX support at 28,875, 28,230, and 27,200. Resistance now at 29,760, 30,200, and 30,650.

In any case, as we always do at TheTechTrader.com, we’ll “Trade What We See, Not What We Think.”

Bond Markets Take Center Stage After a Strong Earnings Run

After a strong earnings season helped lift U.S. equity markets to record highs in August, stocks took a breather last week as the bond market moved to center stage. Rising long-term yields raised concerns about whether the economy and financial markets could continue to withstand higher borrowing costs. The 30-year yield ended the week at 5.27%, near its highest level in almost two decades. The 10-year yield was at 4.73%, with the 2-year yield at 4.23%.

The S&P 500 and the Nasdaq fell around 1% to 2%, snapping a three-week string of gains as an unusually strong quarterly earnings season neared an end. The S&P 500 ended the week 1.6% below the record high it set the previous week, while the Nasdaq was 3.4% shy of the historic peak it reached in early June.

August and September have historically been seasonally weaker months for stocks, and uncertainty could rise as the midterm elections approach. While a period of near-term consolidation would not be surprising, resilient economic activity and strong corporate profit growth underpin a constructive backdrop for equities over the next weeks and months.

Gold, Bitcoin, and Oil All Move Higher

The price of gold climbed for the third week in a row and on Friday reached the highest level in more than three months, with gold futures trading around $4,670 per ounce. As recently as mid-July, the precious metal had been trading under $4,000.

Bitcoin surged to its highest level in three months, trading above $77,400 on Friday afternoon after finishing the previous week around $63,000. Even with the recent gain, Bitcoin was still down more than 11% on a year-to-date basis.

Oil prices rose for the second week in a row, driven largely by developments in the Middle East and the Strait of Hormuz. On Friday afternoon, U.S. crude was trading around $87 per barrel, up from $82 a week earlier. Even with the latest rise, oil prices remained well below a recent peak reached on July 23, when crude briefly traded above $92.

Key SPX Technical Levels to Watch

Support near 7,575-80, 7,450-65, 7,275-90, and 7,313-15. Any severe downside extension could test 7,000 and even an outlier level of 6,750. Technical chart resistance lies near 7,800-7,816 and 7,925-40. A test of 8,000 or even 8,250 on a blow-off move would not surprise us.

In any case, as we always do at TheTechTrader.com, we’ll “Trade What We See, Not What We Think.”

— HARRY BOXER, THE TECHNICAL TRADER | www.thetechtrader.com