Tech Leads Market Rebound as Inflation Cools and Economic Data Impresses

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

Two economic reports appear to have driven positive sentiment over the past several days. Inflation data continues to moderate, with both the consumer price index (CPI) and producer price index (PPI) inflation coming in softer than expected for July.

Additionally, economic data remains strong, with both retail sales and jobless claims surpassing forecasts. These indicators suggest that the U.S. economy may be cooling, but it is not teetering on the edge of a sharp downturn or a recession.

As a result, last week, financial markets rallied from the August 5 sell-off, with the S&P 500 rebounding by over 6.5% and the technology-heavy Nasdaq surging by more than 8%. The 10-year Treasury bond yield, which had dropped to 3.66% during the market volatility, climbed back to about 3.9%, signaling renewed confidence in the broader economy. Moreover, the VIX volatility index, known as Wall Street’s “fear gauge,” spiked to 65 on August 5, its highest level since 2020, but has since eased back to under 15, aligning with the average over the past year.

The recent recovery in the stock market has once again been led by the technology and growth sectors, which had also been the hardest hit during the recent pullback.

As we approach a period of potential Fed rate cuts, I believe we may see a broadening of market leadership, potentially including a resurgence in smaller-cap and junior growth sectors.

This pattern often emerges as bull markets near their end phase, with traders seeking undervalued stocks that have not yet participated in the bull run.

History tells us that if the Fed is cutting interest rates and the economy remains resilient, markets can continue to perform well. While market fluctuations are normal, particularly as we head into the seasonally weaker months of September and October, and then into U.S. elections, these periods of volatility and pullbacks may present opportunities to enter new emerging stocks and sectors.

In any case, closely monitor the technicals and “Trade What You See, Not What You Think”