Market Insights

Stocks are trying to stabilize before three major economic events that could determine direction in coming months.

The S&P 500 rose 0.8 percent between Friday, August 18, and Friday, August 25. It was the first gain in the last four weeks, supported by large-cap growth stocks like Tesla (TSLA).

There were two big events: Nvidia (NVDA) earnings and Jerome Powell’s speech at Jackson Hole, Wyoming. Both were more or less as expected. NVDA was already the top-performing member of the S&P 500 this year thanks to its leadership in artificial intelligence (AI). It jumped to new highs after results topped estimates.

Federal Reserve Chairman Powell also walked a middle line between hawkish and dovish. He acknowledged progress on inflation, while pledging to hike interest rates again if the economy or job market run too hot. His speech was mostly consistent with earlier statements. He’s waiting for more news on the economy, including three big events this week:

• Wednesday: revised gross domestic product (GDP)
• Thursday: PCE inflation
• Friday: non-farm payrolls
• Note: all three are due at 8:30 a.m. ET.

Technology Rebounds

Last week was noteworthy because large-cap growth stocks and the Nasdaq-100 outperformed the S&P 500 after lagging for the previous three weeks. Technology, software, semiconductors and consumer discretionaries like TSLA led the move.

The electric-car giant started the week by rebounding from a 2-1/2 month low. Bullish notes from Wells Fargo and Wedbush Securities contributed to the rally. Wedbush’s call interestingly cited a new growth market for TSLA, its fleet of charging stations.

Vaccine maker Moderna (MRNA) climbed amid new cases of coronavirus. Palo Alto Networks (PANW) and Autodesk (ADSK) jumped on strong quarterly results. Hasbro (HAS) rallied on signs that its Monopoly Go game was thriving on the iOS app store.

Energy was the worst performer last week but remains the only positive sector this month.

Charting the Market

There were a few potentially noteworthy things on the charts.

First, the S&P 500 remained above its August 18 low. That was slightly higher than the June 26 low, which in turn was slightly above the peak from last summer. Further consolidation in this area could suggest new support is developing above old resistance — a potentially bullish pattern.

Second, the index made a higher low and lower high. That kind of “bullish inside week” may suggest its pullback is nearing an end.

Third, Friday’s close represented approximately a 50 percent retracement of the rally after Congress raised the debt ceiling in early June.

U.S. Treasuries are also potentially important because yields have returned to their highest levels in over a decade. That’s lifted mortgage rates and hurt sentiment toward stocks. However last week the 10-year Treasury’s yield tried and failed to pass its high from last October. Investors may watch for a potential “double-top” reversal pattern.

A move lower could confirm that pattern and lower borrowing costs. A breakout may trigger worries about higher rates and likely hurt stock-market sentiment. All three of this week’s three big events could impact yields at this key moment.

The Week Ahead

Consumer confidence comes out earlier, on Tuesday.

Revised second-quarter GDP is due on Wednesday morning. The earlier estimate on July 27 shot past expectations. Other items include ADP’s private-sector payrolls report, crude-oil inventories and pending home sales.

Thursday’s personal consumption expenditure (PCE) index is a measure of inflation often cited by the Fed. It’s included in the personal income and report. Initial jobless claims are also due.

The Labor Department’s non-farm payrolls report is on Friday morning. Investors are likely to watch wages and unemployment. They may view “good news” (high wages and low unemployment) as “bad” for stocks because it could cause more rate hikes.

The Institute for Supply Management’s manufacturing index and construction spending follow later in the morning.