Rising Yields Vs. Risk Taking
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S&P 500 went through a similar daily pattern as on Monday – the weak tech, XLF and XLV telltlae signs didn‘t lie – this and gold with oil clues talked amply in yesterday‘s video. The slowly cracking tech breadth underscores the battle of narratives, the focus – soft landing vs. return of inflation forcing the Fed to raise again – as much with yesterday‘s manufacturing PMIs as with today‘s non-farm payrolls employment change.
With or without Fitch downgrade, it‘s yields on the long end that carry greatest significance. The long, AI-driven resilience in tech is getting duly challenged (hello Top 7 stocks, look at similarly precarious SMH chart too), and financials with healthcare not kicking in much yesterday, just highlights the consolidation below 4,625 resistance for the time being. Nasdaq surpassing 15,400 isn‘t coming soon, and DAX diving sharper than US indices underscores momentary caution as well.
Meanwhile, oil price upswing and still resilient job market consequences are paving the way for return of inflation – whether it‘s data for Jul already, or only Aug / Sep (I favor the latter two) – bonds aren‘t waiting, and are in my view reflecting inflation expectations rather than the still holding soft landing narrative.
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Let‘s move right into the charts (all courtesy of www.stockcharts.com) – today‘s full scale article contains 4 of them.
S&P 500 and Nasdaq Outlook
4,592 held as support yesterday, but won‘t be reconquered today – this Fitch gap would take a bit longer to convincingly close. For now, I don‘t see enough tech stabilization as in or as sustainable. Perfectly aligns with the weeks ago talked vision of greater trading range over the nearest month, which would be great for picking up the finest sectors (XLI, XLE, XLB, some XLV and XLF as talked in Sunday‘s analysis), beaten by souring tech sentiment.
Market breadth is weakening, and it‘s not a matter of tech only – rising yields will still bite as stock market correction continues.
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