US stocks swim against the risky tide

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By :  ,  Financial Analyst

U.S. stock markets are diverging with other ‘risk’ assets ahead of a busy week.

The Nasdaq Composite and benchmark S&P 500 have repeated their late-Friday double act, swinging to new all-time highs after earlier weakness.  Data showing higher consumer spending helps, after a cool initial reaction. The lowest Core PCE Price Index reading in 14-months was among sources of wariness.  Yet indications of U.S. economic resilience—with provisos—still reassure. They imply Federal Reserve policymakers, meeting this week, will remain patient for the foreseeable future. Earnings expectations are also improving. Refinitiv consensus projects an average S&P 500 quarterly profit fall of 0.2% year-on-year vs. a 2% decline expected earlier this month. Firming hopes of a U.S.-China breakthrough in resumed talks this week are in the mix too.

Yet new tops are questionable from a broader perspective. The normalised chart below maps markets that benefit from abundant risk appetite: U.S. oil (WTI) futures, the SOX semiconductor index, China's Shanghai Composite index and the S&P 500. After most dipped recently, U.S. shares could also reverse. Much depends on multiple influences outlined above.

Normalised chart: WTI futures/Philadelphia Semiconductor Index/Shanghai Composite/S&P 500 – year-to-date

Source: Refinitiv/City Index

Whilst lacking broad applicability, the closely-followed Dow Jones Industrial Average and its futures, charted below, could impact wider stock sentiment. Major surpassed resistance now supports:

  • Dow trades above blue 200-day moving average (200-DMA)/red dotted 21-day exponential average
  • Regaining 26696 2019 top would back the view that U.S. markets still authentically reflect wider sentiment
  • Supports like 26282, 78.6% of last year’s reversal, 25246 March low and 200-DMA could prevent serious declines
  • However, if tested, this would suggest broader gains remain wary

CBOT E-Mini Dow Jones Future (continuous) – daily

Source: Tradingview/City Index

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