Equities report: Fed in

Since the start of the week the NASDAQ and the S&P500 have moved higher. We are to review the release of the Fed Chair Powell’s speech on Friday, the upcoming earnings report from Nvidia, the issues surrounding the Fed’s independence and are to conclude the report with a technical analysis of S&P 500’s daily chart.

Fed Chair Powell’s ‘dovish’ speech

Fed Chair Powell’s speech at the Jackson Hole Symposium occurred on Friday, and through his comments, it appeared to showcase a dovish pivot in the Fed’s monetary policy approach. In particular, we are referring to the following statement that “Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance”. The Fed Chair comments showcase a willingness to ease the tight financial conditions which may be surrounding the US economy. Thus the comments by the Fed Chair may have aided the US Equities markets following their release. However, it should be said that with the US PCE rates due out this Friday the narrative could possibly change. Specifically a hotter than expected inflation print could ‘twist’ the Fed’s hand and possibly increase pressure on the Fed to withhold from cutting rates, which may then weigh on the US stock markets. On the other hand, should the inflation print showcase easing inflationary pressures in the US economy it may have the opposite effect which may then aid the US Equities markets. In our opinion for the ‘dovish’ narrative from the Fed to change, the inflation print may have to substantially deviate from the current expectations by economists.

NVIDIA’s earnings report due out today

Nvidia’s earnings for the quarter are set to be released today post market. The current expectations by analysts are for the company’s EPS figure to improve from $0.76 to $1 and for their revenue to also increase from $44.06 billion to $45.81 billion. In turn should the company beat it’s earnings expectations it may aid their stock price and vice versa. However, we are slightly more interested in the company’s forward guidance and the recent developments over their H20 chips and how their sales may be affected in China, as it may have a more significant impact on their stock price overall.

Fed independence at stake?

Acording to a statement by the Fed “Lisa Cook has indicated through her personal attorney that she will promptly challenge this action in court and seek a judicial decision that would confirm her ability to continue to fulfill her responsibilities as a Senate-confirmed member of the Board of Governors of the Federal Reserve System,” referring to the notice provided by President Trump that she is removed from her position. In turn, the continued battle between the US Government and its perceived attacks on the independence of the Federal Reserve could weigh on the US Equities markets in the short term. However, should the opportunity arise for the Trump Administration to appoint more ‘doves’ in the Federal Reserve, it may instead aid the US stock markets as the power pendulum may swing in favour of further rate cuts rather than maintaining interest rates steady.

Technical analysis

US500 Daily Chart

Support: 6135 (S1), 5850 (S2), 5580 (S3).

Resistance: 6467 (R1), 6715 (R2), 7000 (R3).

The US500 appears to be currently testing our 6467 (R1) resistance line. We opt for a bullish outlook for the index’s price and supporting our case is the upwards moving trendline which was incepted on the 23rd of May and the RSI indicator below our chart which currently registers a figure near 60, implying a bullish market sentiemnt. For our bullish outlook to continue we would require the index to remain above the upwards moving trendline in addition to clear break above our 6467 (R1) resistance line with the next possible target for the bulls being the hypothetical 6715 (R2) resistance level. On the other hand, for a sideways bias we would require the index to remain confined between our 6135 (S1) support level and our 6467 (R1) resistance line. Lastly, for a bearish outlook we would require a clear break below our 6135 (S1) support level with the next possible target for the bears being the 5850 (S2) support line.