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This is a follow up article to: S&P 500 wraps up August gains as rate cut decision looms
The S&P 500 (Symbol: SP500) continued its rally, closing at a fresh record high of 4,662. This rally was underpinned by strong performances in the semiconductor sector, with stocks like Nvidia rising 4%, Taiwan Semiconductor gaining 4.1%, and AMD adding 1%.
Picture: S&P 500 hit new record highs by tech stock momentum, as observed on the VT Markets app.
We look at the charts for a clearer picture. The SP500 closed at 5732.85, remaining in a solid uptrend, particularly supported by strength in tech stocks. These companies, increasingly viewed as critical to future economic growth due to the rising demand for AI and advanced computing solutions, have been key drivers.
The price has been supported by the 24-period EMA, which has acted as a reliable dynamic support level over the past sessions. The MACD histogram is showing bullish signals, with the MACD line crossing above the signal line, confirming ongoing strength in buying pressure.
We are currently testing the resistance zone around 5744. A breakout beyond this level could indicate further upward potential towards the 5800 mark. However, any pullback to the 5700 range could attract dip buyers, potentially keeping the bullish sentiment intact. If selling pressure increases, support may come in at the 5600 mark, which aligns with previous lows and the 72-period EMA.
Expectations for further interest rate cuts from the Federal Reserve have buoyed sentiment.
The consumer confidence index recently fell to its lowest in over three years, intensifying speculation that the Fed might take a more dovish stance.
Related content: Interest rate tug of war for central banks
Historically, when the Fed cuts rates in response to slower economic growth, equity markets—especially growth sectors—tend to benefit from lower borrowing costs and an influx of liquidity. For example, during the Fed’s easing cycle in 2019, the S&P 500 rose over 29%, with tech stocks leading the way.
Traders are increasingly positioning themselves for potential rate cuts, likely adding more fuel to the current rally. It is worth noting that with inflation appearing to cool and economic data softening, the likelihood of the Fed trimming rates is growing. This could push the S&P 500 even higher, although risk management remains important due to potential volatility, especially with the upcoming PCE inflation report on Friday.
Looking ahead, earnings season will also play a critical role in determining whether this rally is sustainable. During past earnings seasons, particularly in early 2021, the S&P 500 saw significant upward moves when earnings exceed expectations, and it is likely that we will see a similar pattern this quarter if companies manage to outperform once again.
In the short term, traders should closely watch key data points like jobless claims and housing market performance for further clues on the economic health and how it may impact the Fed’s decision.
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