Market Insights

Stocks just held key support as strong economic data overshadowed persistent bearishness.

The S&P 500 rose 3.6 percent in the holiday-shortened period between Friday, September 2, and Friday, September 9. It was the first positive week in the last four. Ninety-three percent of the index’s members advanced, along with every major sector.

The Institute for Supply Management’s service-sector index showed prices declining for the fourth straight month. Meanwhile, initial jobless claims fell more than expected to the lowest level in over three months. The data confirms earlier trends of the economy continuing to improve from pandemic lockdowns, commodity shortages and inflationary pressures.

Last week’s gains came despite more hawkish comments from Federal Reserve officials. Jerome Powell, Christopher Waller, Loretta Mester and Lael Brainard — all voting members of the monetary committee — repeated pledges to keep fighting inflation with high interest rates. The market’s ability to rally despite the Fed may suggest investors are looking past the rate hikes and seeing better conditions in coming months.

Now could be a time for sentiment to shift from pessimism to optimism because expectations hit the most bearish level in 2-1/2 months. (Over 53 percent, according to the American Association of Individual Investors.) That kind of backward-looking negativity can suggest money managers are finished selling and may soon look to deploy cash. Could the market “climb a wall of worry,” if anxieties lift?

‘Risk On’ Leads

The best-performing sectors last week were consumer discretionaries, materials and financials. Those are all “risk-on” sectors that benefit from a stronger economy. Alternate-energy names also surged as investors continue to expect benefits from the Inflation Reduction Act.

Biotechnology companies advanced after Regeneron Pharmaceuticals (REGN) announced positive data for its eye drug Eylea. Morgan Stanley, Jefferies and BMO Capital Markets upgraded REGN in response.

Energy stocks rose the least last week as crude-oil hit its lowest price since late February.

Charting the Market

The S&P 500 briefly dipped below 3900 last week but quickly rebounded and closed above the previous week’s high. The result was an “outside week,” a potentially bullish reversal pattern. The index also held the 3910-3920 area where it peaked on July 8 and bounced July 26. That may confirm old resistance has become new support.

Last week’s rebound happened above July’s trough, which could represent a second higher low versus June. Prices also closed above the 50-day moving average, a potential sign of the trend turning bullish again.

The Week Ahead

This week features a handful of events with potential importance — especially inflation data. There could also be news from the railroads, which are attempting to avoid a transportation strike by the deadline on Friday.

Nothing important is scheduled for today.

Tomorrow’s big event is the consumer price index (CPI) inflation report.

Wednesday features the producer price index (PPI) and crude-oil inventories. Ethereum’s major network upgrade, known the Merge, is expected to occur sometime in the evening.

Thursday brings retail sales and initial jobless claims. Adobe (ADBE) reports earnings in the afternoon.

Friday could be active because it’s “quadruple witching” day. Consumer sentiment is also due.