Summary
- Price Action: S&P 500 tops out after posting record high at 6925.1
- Catalysts: Federal Reserve cut interest rates as expected but Chairman Powell cautious on further cuts, Magnificent 7 Q3 earnings releases mixed - strong profits offset by rising costs, Trump calls meeting with Xi 12 out of 10
- Future Drivers: Outcomes from President Trump/Xi summit, Q3 Amazon and Apple earnings
Why is the S&P 500 approaching 7000 this week?
Weekend news of a de-escalation of trade tensions between the US and China led to a gap open for the S&P 500 on Monday morning at 6850.2, almost 1% higher than its Friday October 24th close at 6792.5, as can be seen on the chart below. This positive momentum was reinforced on Tuesday by demand for key Magnificent 7 stocks which maintain a big influence over the direction of the S&P 500 due to their huge market capitalisation. News that Microsoft had agreed a 27% ownership stake in Open AI and a flurry of announcements from NVIDIA CEO Jensen Huang regarding AI start up investments, new chip supply deals and an order book worth half a trillion dollars reinvigorated AI optimism despite concerns of overextended valuations. This positivity helped the S&P 500 index to post a new high at 6925.1 very early this morning.
Technical update – S&P 500 4 hour chart:
Since the high at 6925.1 prices have experienced some selling interest as traders digest the outcome of some key scheduled events. While the Federal Reserve cut interest rates by 25bps (0.25%), as expected overnight, the comments from Chairman Powell in the press conference led to some disappointment as he was more cautious about the chances of another rate cut in December, something the market had not expected.
Also, the earnings from Magnificent 7 members, Alphabet, Meta and Microsoft were mixed, with strong quarter revenue performance overshadowed by rising costs and the need for even greater investment to match the demand for AI services.
What are the drivers for the S&P 500 into the weekend?
The much-anticipated meeting between President Trump and Xi has only just concluded with President Trump rating the meeting a 12 out of 10 in his comments to reporters. Initial updates from both sides seem to indicate that the outcomes are broadly in line with what was already anticipated by markets, potentially leaving room for some disappointment. As further detail emerges it could play a bigger role in determining the direction of the S&P 500 into the weekend.
Also in focus are the earnings releases from Amazon and Apple, which are due after the close tonight. While traders may be focused on judging actual revenue against high expectations, the volatility/sentiment driver for these individual stocks and the S&P 500 could be iPhone 17 sales, performance of the Amazon cloud computing unit, the on-going implications of President Trump’s tariff policy and trade with China.
Can the S&P 500 break 7000?
Technical update – S&P 500 4 hour chart:
Looking at the chart above, the initial sell-off in the S&P 500 index from the high of 6925.1 this morning found support at the rising Bollinger mid-average, which currently stands at 6877.2. While this mid-average holds price weakness on a 4 hourly closing basis the upside momentum remains intact, with closes above the record high at 6925.1 opening potential for moves towards the psychological 7000 level, even 7028.9, which is the 138.2% Fibonacci extension of the recent price strength from the October 22nd low to the October 30th high.
Technical update – S&P 500 4 hour chart:
On the downside, the Bollinger mid average at 6877.2 may offer the first short term support, with closing breaks below this level opening potential towards 6763.7, which is the 38.2 Fibonacci retracement (Oct 10th to Oct 30th strength), even 6713.9, which is the 50% mid-point.
Support: 6877.2 (Bollinger mid-average), 6764.3 (38.2% retracement), 6714.4 (50% mid-point)
Resistance: 6925.1 (October 30th high), 7000 (Psychological level), 7028.9 (138.2% extension)
