Benchmark US stock index back in bullish channel

It’s been a classic few weeks of summer trading in the major US stock indices with markets yo-yoing between bearish and bullish drivers.

There is plenty of precedence to back the belief that price action during August needs to be taken with a healthy dose of scepticism until markets transition toward what often turns out to be more difficult conditions through which to navigate.

Risk markets have swung between risk-on and risk-off sentiment. One minute, the prevailing narrative has been about the US ratings downgrade and abundant Treasury supply that will cast a big shadow over everything.

The next minute, things aren’t so bad, and the US can get away with it, which it does a lot in global markets.

The key theme remains around inflation, as it has been for some time and whether it has been tamed or will prove more stubborn than previously thought.

This will no doubt be at the forefront of central bankers’ minds as they sit down for their meetings over the next month.

Bad news is good news

This week, markets breathed a sigh of relief (or maybe it’s just summer markets) on softer than expected data.

The sharp decline in the monthly JOLTS job openings propelled the S&P 500 higher, as it enjoyed its biggest one-day gain in nearly three months on Tuesday.

The data showed that demand for labour is starting to level off ad wage growth pressures are easing which is undoubtedly good news for the Fed and potentially stocks too.

Softer ADP employment figures also helped the bulls yesterday. The most aggressive monetary policy tightening in decades may finally be having an effect on the labour market.

US consumer sentiment also showed signs of weakening in both the current situation and the future expectations component. This is similar to signals in the PMIs and other surveys.

Again, this is good news in a sense for policymakers as there is less pressure to lift rates again. It also shows how important US activity data is as a driver for markets, while it intensifies the focus on the monthly non-farm payrolls report released tomorrow.

Tech bouncing

Technology stocks had been suffering heavily over the last few weeks on the back of rampant Treasury yields.

These types of companies offer the promise of high future growth which is more attractive when interest rates are low.

Higher yields mean investors can obtain decent returns in lower-risk bond funds and sell their riskier equity positions.

Elevated rates also weigh on tech companies as they mostly rely on debt to finance their growth.

On the charts, the benchmark S&P 500 broke down through its bullish channel from the mid-March lows a few weeks ago.

The 50-day simple moving average at 4472 was also pierced, but that was retaken on Tuesday, and we are back again in the long-term ascending channel. The late July high at 4611 is less than 100 points away.