The U.S. stock market showed continued strength Tuesday following blowout earnings from the Tech sector and mostly upbeat economic news. The gains lifted the Nasdaq and S&P 500 to another round of record highs while keeping the blue-chips and small-caps in tight trading ranges.
The Nasdaq extended its winning streak to three straight sessions after rising 1.4%, with the second half and new all-time high tagging 11,945. Fresh and lower resistance at 11,900-12,000 was cleared and held. A close above the latter would signal additional momentum toward the 12,100-12,200 area.
The Russell 2000 added 1.1% but remains in a seven-session trading range after closing on the session high of 1,578. Current and lower resistance at 1,570-1,585 was recovered. A move above the latter would suggest another run toward 1,600-1,615. The S&P 500 rebounded 0.8% to close higher for the eighth time in nine sessions, with the late-day record peak reaching 3,528. Uncharted territory and lower resistance at 3,525-3,550 was cleared and held. A move above the latter would indicate additional strength toward 3,575-3,600.
The Dow also gained 0.8% after trading to an afternoon high of 28,659. Current and lower resistance at 28,500-28,750 was reclaimed. A close above the latter would indicate further upside toward 29,000-29,250 and levels from mid-February.
Materials and Technology were sector standouts after jumping 2.9 and 1.9%, respectively. Utilities and Healthcare paced sector laggards after dropping 1.2% and 0.9%, respectively
European markets were mostly lower after inflation data for the eurozone came in well below expectations, raising speculation that the European Central Bank will have to act sooner than later. UK’s FTSE 100 sank 1.7% and the Belgium20 fell 0.6%. The Stoxx 600 was down 0.4% and France’s CAC 40 dipped 0.2%. Germany’s DAX 30 edged up 0.2%. A flash reading showed that annual headline inflation came in at -0.2% in August, down from 0.4% in July. In addition, core inflation sank to 0.4% year-over-year in August — down from 1.2% in July — the lowest reading since records started in 2001.
Asian markets closed mixed despite better-than-expected economic news out of China. South Korea’s Kospi rose 1% and China’s Shanghai climbed 0.4%. Hong Kong’s Hang Seng added 8 points, or 0.03%. Australia’s S&P/ASX 200 sank 1.7% and Japan’s Nikkei slipped nearly 2 points, or 0.01%. China’s Caixin/Markit manufacturing Purchasing Managers’ Index came in at 53.1 for August, versus forecasts of 52.7, and the 52.8 reading in July.
The ISM Manufacturing Index rose 1.8 points to 56 in August, versus forecasts of 54.5, following a 1.6-point increase in July. The employment component edged up to 46.4 from 44.3, while new orders jumped from 61.5 to 67.6. New export orders increased from 50.4 last month to 53.3. Imports climbed from 53.1 to 55.6, while inventories fell from 47 to 44.4. Prices paid rose from 53.2 to 59.5.
Markit PMI checked in at 53.1 in the final August report, rising 2.2 points from July’s 50.9, and below forecasts for a print of 53.6. However, it was the highest reading since January 2019. The employment component increased and hit its highest since November. New orders climbed to 54.1 from July’s 51.3, the second straight month of expansion.
Construction Spending inched up 0.1% in July, below expectations for a 1% rise, but breaking a string of four consecutive months of declines. Strength was in residential construction spending, which increased 2.1% following June’s -0.6% slide. Spending on nonresidential construction projects declined -1.12% after slipping -0.4% in June. Private construction spending increased 0.6% after falling -0.3%. Public spending declined -1.3% after June’s -0.9% drop.
Chain store sales climbed 5.8% in the four weeks ending August 29, strengthening from the 4.1% over the prior period. The monthly pace of contraction eased to -0.3% year-over-year versus -1.9% previously. Sales on the week were up 4.6% year-over-year versus the 0.6% clip previously. Back-to-school sales of electronics helped support the pick up, along with demand for more coronavirus personal protective equipment. There was also a last minute rush to stock up on supplies ahead of Hurricane Laura, including canned goods, groceries, and plywood.
Fed Governor Lael Brainard confirmed the Federal Open Market Committee is all in with respect to stimulus, and said the economy still needs more fiscal and monetary support. She added with ongoing virus headwinds, it will be important for monetary policy to pivot from stabilization to accommodation. She added it will be important to provide the requisite accommodation to achieve maximum employment and average inflation of 2% over time, following persistent underperformance.
Brainard went on to say she’s not clear what measures will be taken, but policymakers have all but ruled out negative rates. There is scope for further forward guidance, with the potential for increased quantitative easing and yield curve targeting. She noted risks are tilted to the downside with job gains slowing and the economy facing considerable risks from coronavirus uncertainties. However, she’s also concerned that the lower-for-longer stance could boost financial sector risks.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the second straight session following an intraday surge to $164.07. Current and lower resistance at $164-$164.50 was tripped and held. A close above the latter would suggest additional upside toward $165.50-$166 and the 50-day moving average.
Near-term support is at $163-$162.50, followed by $161.50-$161.
The S&P 500 Volatility Index ($VIX) traded to a morning high of 26.59 before settling lower for just the second time in five sessions. Lower resistance at 26.50-27 was cleared but held. A close above the latter would signal additional upside risk toward 27.50-28, and the 200-day moving average.
The fade to 25.02 breached but upper support at 25.75-25.25 and the 50-day moving average, but levels that failed to hold. Continued closes below the 25 level would signal another leg higher for the overall market.
The iShares Russell 1000 (IWF) closed in the green for the third straight session and for the eighth time in nine, with the intraday and fresh all-time high tapping $231.55. Uncharted territory and lower resistance is at $231.50-$232 was cleared and held. A move above the latter would suggest additional momentum toward the $234-$234.50 area.
Rising support is at $231.50-$231, followed by $229-$228.50.
RSI remains in a slight uptrend with key resistance at 80 getting cleared and holding. Continued closes above this level would signal additional strength towards 85 and overbought territory from January 2018. Support is at 75-70.
The Industrials Select Sector Spider (XLI) showed strength for the fourth time in five sessions after testing a high of $78.67. Current and lower resistance at $78.50-$79 was reclaimed. A close above the latter would be an fresh bullish signal with retest potential toward $80-$80.50 and levels from late February.
Support is at $77.50-$77, followed by $76-$75.50. RSI is back in a slight uptrend after clearing and holding lower resistance at 65-70. A close above the latter would suggest ongoing strength toward 75-80 and early June/August peaks. Support is at 60-55 with the latter holding since mid-July.