The Impact of US Inflation on Market Sentiment and Technical Analysis
US inflation data in August met expectations, leading to interesting market movements. Initially, the reaction was neutral, but as expectations for the Fed Funds rate shifted towards a 25bp cut instead of a 50bp cut, a wave of selling in risk assets ensued.
However, sentiment quickly shifted, with the Nasdaq100 not only recovering from a 2% decline but also rising by over 2%. The gradual slowdown in inflation does not indicate any sudden changes.
Technically, the indices show promise for the bulls. The S&P 500 is rallying for the second time since early August, approaching its 200-day moving average. A bullish engulfment pattern on the candlestick chart reflects a strong buying interest on the downside.
As concerns about the August labor market fade, we are witnessing a ‘nice’ slowdown in price growth, unrelated to a slowdown in US economic activity but rather a normalization of growth rates. Both the S&P 500 and Dow Jones closed above their 50-day moving averages, with the VIX volatility index dropping below the 20 mark.
For the Nasdaq100, a key technical hurdle is the 50-day moving average, which the index approached on Thursday. A break above it could signal readiness for further gains and a retest of all-time highs.
In conclusion, the US inflation data has had a significant impact on market sentiment and technical analysis. Investors should pay attention to these shifts in expectations and technical indicators to make informed decisions about their portfolios.