The U.S. stock market continues to rise, but it is now within touching distance of a resistance level that ties the 2020 lows to the February highs.
SPX 500 – Weekly Chart
The April lows in the SPX 500 are a distant memory with the market soaring above the February highs. The market is now approaching the resistance that links the 2020 lows to those highs. That could be a level to watch throughout the month of October.
Strength in semiconductor and AI stocks today has boosted the broader market on Wednesday. The media cites optimism that growth in the AI sector and spending on artificial intelligence will lead to corporate profits, but there has been growing doubt over that theme.
Stocks were also supported by hopes that a resilient U.S. economy and additional Fed easing will continue to support the economy. Lower bond yields have helped that assessment, with the 10-year T-note yield down 1 basis point to 4.11%
The market is ignoring the U.S. government shutdown, and with a light economic calendar into the weekend, there is potential for further gains to test the resistance level noted.
The government shutdown meant delays in the release of government reports, including Tuesday’s August trade figures and last week’s monthly payroll data. A prolonged shutdown could delay the government’s inflation data on October 15. The White House has stated that a prolonged shutdown would result in widespread dismissals of employees in government programs that don’t align with Trump’s priorities. Bloomberg Economics has estimated that 640,000 federal workers will be furloughed during the shutdown, which would push the unemployment rate up to 4.7%.
Rising corporate earnings have fueled the stock market. Bloomberg Intelligence reported that more than 22% of companies in the S&P 500 delivered guidance for Q3 above analysts’ expectations. However, Q3 profits are expected to show their smallest increase in two years.
The markets are currently pricing a 93% chance of a -25 bp rate cut at the next FOMC meeting on October 28-29. That could rattle markets if Jerome Powell decides to delay a rate cut due to the delay in government data releases, like inflation.
