Key points:
The US stock market showed little movement as investors prepared for the release of the July Consumer Price Index (CPI) report. This data is crucial as it will provide further insight into whether inflation is continuing to cool, which could influence the Federal Reserve’s decision on interest rates in its upcoming September meeting.
Picture: S&P 500 holds steady as investors await the July CPI report, as observed on the VT Markets app.
The SP500 index on the 5-minute chart shows a slight decline, with the price currently at 5434.35, after testing a high of 5443.23 earlier in the session. The chart reflects a range-bound market with minor fluctuations within a tight range.
The EMA (Exponential Moving Average) lines (24,24,72) suggest that the market is maintaining a sideways trend. The MACD histogram has moved into negative territory, and the MACD lines have crossed below the signal line, indicating a potential weakening of momentum.
On Tuesday, the Dow Jones Industrial Average climbed by 1.04%, the S&P 500 by 1.69%, and the Nasdaq Composite by an impressive 2.43%. The market rally was primarily fueled by positive sentiment following better-than-expected producer inflation data. This data reinforced the belief that inflationary pressures are easing, which in turn bolstered investor confidence that the Federal Reserve might opt for a larger interest rate cut in September.
Leading the charge were megacap tech stocks, with Nvidia surging by 6.5%, AMD rising by 3.2%, and Tesla advancing by 5.2%. These stocks have been the darlings of the market throughout 2024, benefiting from their strong growth prospects and investor enthusiasm for innovation and technology.
Additionally, Starbucks saw a significant 24.5% spike after announcing that Brian Niccol, former CEO of Chipotle, would be taking the reins as the company’s new CEO. This move has sparked optimism among investors that Niccol could replicate the success he had at Chipotle, potentially turning Starbucks into a powerhouse of innovation and growth.
A lower-than-expected CPI could further fuel the rally in equities, particularly in the tech sector, as it would reinforce expectations of a more aggressive rate cut by the Federal Reserve. On the other hand, a higher-than-expected CPI could dampen sentiment, leading to increased market volatility as investors reassess their expectations.
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Historically, inflation data has played a crucial role in shaping market sentiment. For example, during the 2008 financial crisis, the Fed’s aggressive rate cuts in response to plummeting inflation expectations helped stabilise the market and set the stage for a recovery. Similarly, in 2020, the Fed’s swift rate cuts in response to the pandemic-induced recession provided a significant boost to equity markets.
The upcoming CPI report will be a critical event. A lower-than-expected inflation reading could drive further gains in equities, particularly in the tech sector. Traders should be prepared for potential volatility and may consider positioning themselves to take advantage of any market swings following the report’s release.
Monitoring the CPI data closely will be essential, as it could set the tone for market movements in the coming days. Additionally, keeping an eye on sector-specific news, such as regulatory developments and corporate earnings, will be crucial for making informed trading decisions in this dynamic environment.
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