Major US indices posted gains after three consecutive days of losses. Volumes remained very low and this can be common during the summer months. So, considering the generally low trading volumes during the month of August, equities have been vulnerable to mixed economic data and Fed expectations. There does appear to be a bit of caution ahead of the upcoming Jackson Hole Economic Symposium, where the Fed Chairman is scheduled to speak on Friday following the release of July PCE. Markets seem to expect a more-hawkish tone from the Fed’s Powell, as meme-stock rallies have showed again after the July rate decision, at which he said the Fed was at the ‘neutral rate.’

In this regard, Minneapolis Fed President Neel Kashkari reiterated yesterday that the FED is committed to containing inflation and added that “his fear” is that the central bank underestimates the persistence of inflationary pressures.

Markets appear to be positioning for this hawkish message. US Treasury Yields continued to rise and the US dollar index bounced back after yesterday’s brief stumble. - Follow this link for USD Price Action Set Ups.

Meanwhile, US equity markets remained choppy through today’s session within a small range. The Dow and the S&P 500 ended with small advances of 0.19% and 0.30% respectively, despite all S&P sectors showing gains.

Support remains intact in the S&P 500 around 4,081 as there is a confluence between the 100-Day Moving Average and the 38.2%Fibonacci retracement. 4,000 is a psychological level to watch. On the upside, resistance is around the 200 Day Moving Average at 4,300.

S&P 500 FUTURES (ES), DAILY CHART

S&P 500 Futures Daily Chart Prepared using TradingView

Regarding corporate earnings, mixed reports from consumer discretionary companies didn’t seem to get much traction. Advanced Auto Parts, Brinker International (the company behind many restaurant franchises) and Nordstroms all lowered their full-year profit guidance. Meanwhile, news that Peloton struck a deal to sell its products through Amazon gave the stock a 20.36% boost. Bed Bath and Beyond also closed higher with a 18.00% gain after announcing a funding source to shore up its liquidity.

Finally, a better-than-expected earnings report from software company Intuit Inc, supported the Nasdaq 100 which closed 0.28% higher.

On the economic front, and as mentioned yesterday, economic data remains one of the largest drivers and considering the low liquidity that’s common in summer months, volatility has begun to increase. However, today’s items in the Economic Calendarfailed to create much follow-through while continuing to send mixed signals about the health of the economy. The situation around the housing sector remains a concern.

US Home prices for the month of July fell for the first time in three years, with the biggest drop since 2011. Pending home sales also showed a sixth consecutive decline but were down -1% vs an estimated -4.0% and an -8.9% drop in June. Are these signs that the housing sector has hit bottom? I don’t know. But in the month of July US mortgage rates slid (not necessarily the same case for August) and that appears to have helped demand.

Also of note, and in contrast with yesterday’s negative PMI numbers, durable goods orders were unchanged in July after a 2.0% expansion in June. Core orders were higher than expected, indicating a bit of stability.

In summary, markets appear to be waiting for the speech by Fed Chair Powell on Friday. Some sectors of the economy are already showing pain, but inflation remains high. Is it too early to pivot and slow the pace of interest rate hikes? Would the FOMC keep the aggressive tightening cycle? While we wait for those answers, tomorrow’s second estimate of the US GDP could provide some interim feedback.

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