Markets Press Higher, Pushing S&P 500 & DJI to New All-Time Highs

Technical Stock Market Briefing for Day & Swing Traders
| By Harry Boxer, Technical Market Analyst

U.S. stocks rose for the third week in a row, extending their recovery from a sharp decline in the first week of September.

The S&P 500 and the Dow added 0.6%, reaching the record-high levels they achieved the previous week. The NASDAQ rose 1.0%, ending up 2.8% below a record it set more than two months ago.

This past week’s stock market technicals showed that index breadth still looks constructive and signals healthy markets. As of midday Friday, 75% of SPX stocks were trading above their respective 50-day moving averages, with 47% of $COMP stocks and 52% of Russell 2000® (RUT) stocks also above their 50-day moving averages.

Advancing shares outnumbered declining ones by three-to-one through midday Friday, and seven of 11 S&P sectors were trading with 80% or more of their components above their 50-day moving averages. This broad market participation indicates the “cyclical trade” into sectors beyond mega caps remains intact, and markets aren’t shifting toward defensive trades just yet.

Though major indexes only made marginal gains for the week, they got a bit of a tailwind late last week, as the U.S. nonfarm-jobs report surprised nicely to the upside, and the East Coast port strike reached a tentative resolution. Based on those recent reports, economic fundamentals appear to be on solid footing.

After a strong first three quarters of the year, with the S&P 500 up over 19%, stock markets began the fourth quarter on a volatile note.

This volatility is largely due to elevated uncertainty around the U.S. labor market, port strikes on the East Coast, tensions in the Middle East, and the approaching U.S. presidential election.

From a market perspective, the immediate response to the escalation in Middle Eastern tensions was a rise in oil and commodity prices, as well as a rise in safe-haven assets such as gold and Treasury bonds, along with a sharp move higher in the VIX volatility index. However, over the past week, the move in safe-haven assets has largely reversed, with Treasury bonds, gold, and the VIX index all moving back lower.

Crude oil prices remain elevated, as perhaps the biggest market impact from the escalation in the Middle East would come from disruptions in oil and energy supply. For example, WTI oil prices have risen over 10% in the past week alone.

Looking ahead to the Presidential elections, which are now only a month away, history tells us that market volatility tends to increase in the weeks before election day. Stock markets typically pull back ahead of elections, given the uncertainty and rising anxiety around election outcomes.

However, in the weeks following Election Day, stock markets tend to recover, regardless of which party is in the White House. This may be due to the lifting of uncertainty once elections are behind us, allowing markets to focus on future economic trends.