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S&P 500 Forecast: U.S. Tech Stocks Gain as Powell Appeases Markets

S&P 500 Forecast: U.S. Tech Stocks Gain as Powell Appeases Markets

Warren Venketas, Analyst

S&P 500 ANALYSIS

  • Fed looks to labor market recovery as stocks rally
  • Bond markets ease
  • S&P 500 approaching all-time highs
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S&P 500 INDEX CONTINUES BULLISH START TO THE WEEK

U.S. stocks rallied on Tuesday with the NASDAQ composite closing at an all time high as investors shifted into technology and other growth stocks. Most major stock sectors rose yesterday extending the sharp gains enjoyed a day earlier. Big techs such as Twitter, Facebook and Netflix making notable gains, while Microsoft momentarily traded above the $2 trillion market cap figure. The S&P 500 closed 0.5% higher with 9/11 major sectors in the green (see image below).

Boost your stock market knowledge with our articles on the types of stocks available, how equities impact the economy, and getting started with stock trading.

SECTOR SUMMARY

SPX sector summary

Source: Refinitiv

Assisting in the growth trade was a pullback in bond yields – U.S. treasury yields represent the opportunity cost of investing in U.S. stocks therefore, when bold yields fall U.S. stocks become more attractive (as a rule of thumb) and vice versa.

S&P 500 VS U.S. 10-YEAR BENCHMARK

SPX vs U.S. 10 year benchmark government bond yield

Source: Refinitiv

FED COMMENTS SUPPORTIVE OF EQUITY MARKET GAINS

Fed Chair Jerome Powell testified before the House Committee reiterating the fact that although tapering discussions may be on the cards, the Fed is nowhere near to an interest rate hike. He went on to address inflation concerns which have been higher than previously forecasted but this was not actual inflation but rather supply disruptions causing price spikes in a few elements of the overall inflation construct. Once broader or ‘actual’ inflation is apparent only then will the Fed consider tightening. His fellow colleagues echoed a similar rhetoric which further bolstered the central banks stance and market reaction.

Another important factor regarding future adjustments came from the labor market portion of their mandate with Loretta J. Mester noting that she would like to see job gains for the next several moths before any changes are considered - although she is not part of the current committee for 2021 she will be next year.

S&P 500 TECHNICAL ANALYSIS

S&P 500Daily Chart:

SPX daily chart

Chart prepared by Warren Venketas, IG

The rally this week has almost recovered all of last weeks losses as prices head toward the 4267.46 swing high. After a break below the rising wedge support line last week (yellow), U.S. equities are back on track for record highs.

Although markets are fundamentally bullish, there could be some hesitancy around this 4267.46 resistance zone. There may be some consolidation between the 4200.00 psychological and 4267.46 regions before adding further directional bias to the index. Bulls will be looking for a daily candle close above the high before further upside may be incited.

The Relative Strength Index (RSI)shows slowing bullish momentum as well as bearish divergence – RSI is gradually declining while price action is moving higher. Generally, bearish divergence is suggestive of a subsequent fall in the market however, there is no defined time period for when this could occur. I would be wary of jumping in on the long side before any confirmation although the current environment remains extremely accommodative with excess liquidity.

From the bearish perspective, the 20-day EMA (purple) will serve as initial support with 4200.00 providing secondary support.

--- Written by Warren Venketas for DailyFX.com

Contact and follow Warren on Twitter: @WVenketas

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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