Stock markets made a bearish close on Friday, and under crucial support levels, it warned of further selling this week. But the US stock market has led the way with a 2.57% gain on Monday.
That is a special day after much bearish activity recently and sets the stage for further gains this week.
SPX500 – Daily Chart
On the daily chart, the S&P 500 has moved above the 3,650 level and could look to move higher again.
Economic data this week will focus on ISM non-manufacturing PMI figures, but a slight dip is expected. The actual number to watch will be the NFP payrolls on Friday. However, today’s bullish market could imply that we are heading higher and squeezing out the bears.
The latest rally for US stocks came after a drop in the US dollar, which was 1% lower after a recent surge. US stocks rallied after the UK government backed off on its controversial tax cut and a fiscal stimulus package.
UK finance minister Kwasi Kwarteng confirmed reports that the new government under Prime Minister Liz Truss would reverse plans of a tax cut for high earners. Investors were concerned that the unfunded policies would add to the country’s debt. A pivot from the British government now has investors hoping for a similar pivot from the US Federal Reserve.
Citi has now lowered its 2022 S&P 500 target from 4,200 to 4,000 as the bank expects further downside. However, a lower price target still implies that the index will move higher.
“The first major U-turn within the first month of a rule isn’t an encouraging start for Liz Truss’ government,” said City Index analyst Fiona Cincotta. “The move could potentially limit gains in sterling as the market frets over the government’s ability to ride this storm out in a coherent manner.”
For central banks, the recent pressure in the British bond market may cause them to put the brakes on their aggressive rate hikes. Catherine Mann, a BoE’s policy voting committee member, warned that a “gradualist tiptoe strategy” could end up causing more damage.
Ms. Mann voted to increase interest rates by 75 basis points last month. She said inflationary prices were most likely rising due to “stabilised using the front-loaded strategy.”
Stocks in the US may have found a bottom, and further dovish comments from the Federal Reserve could rally stocks.
