Stocks cautious ahead of central bank pow-wow

June 27, 2023

By ForexTime

NQ100_m attempts to stabilise around 21-day SMA after recent losses
Recession fears weigh on “expensive” US stocks
Talk of further rate hikes by central bankers this week may drag US stocks even lower

US stocks futures are trying to find a more solid footing after Monday’s declines.

The 21-day simple moving average is offering immediate support on the NQ100_m index at 14,751.

Further declines may call upon the following support levels to the fore:

The early-June cycle high at 14,673.9 may be the next area of interest for bears (those hoping prices will move lower)
Further south, the 61.8% Fibonacci level from its long term (November 2021 – October 2022) peak-to-trough price action, may offer stronger support around 14,351.
(Note that this region had offers support for this index, which tracks the tech-heavy Nasdaq 100, on a couple of occasions since late May.)

US equities extend last week’s losses

On Monday, the benchmark S&P 500 lost 0.45% and the Nasdaq 100 finishing lower by 1.36%.

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The tech sector underperformed with big losses in Meta, Nvidia and Alphabet while Tesla fell more than 6% after cautious commentary from investment bank, Goldman Sachs.

Interestingly, small caps were resilient with the Russell 2000 closing in the green amid gains in the regional banking sector.

Tech stocks have led markets strongly higher in the first two quarters of the year with moderating inflation and AI-led gains to the fore.

We’ve also seen narrow leadership from a handful of megacap, growth companies with the wider blue-chip S&P 500 up around 12.7% this year, while the tech-laden Nasdaq 100 index still boasts of a year-to-date advance of over 34%.

This has driven equities to more expensive levels with valuations above historic averages, which is starting to grab the headlines and offers a note of caution to some of these handsome gains.

Sintra on the market’s mind

This week sees the ECB annual forum on central banking which takes places at Sintra in Portugal.

The symposium is entitled “Macroeconomic stabilisation in a volatile inflation environment” with the key segment being the policy panel tomorrow featuring:

Fed Chair Powell
BoE Governor Bailey
BoJ Governor Ueda

Several ECB speakers are scheduled to appear today including ECB President Lagarde and Schnabel as well as members of the Bank of England’s MPC.

Central bankers as a whole remain relatively hawkish after changing gears slightly in recent weeks in their battle against sticky, core inflation.

But markets are fearing a recession even though they price in more rate hikes.

So any signs of a change in the hawkish policy drumbeat certainly might hit risk assets, including the US share market.

However, if risk-on sentiment can be restored should markets overcome recession fears, that may prompt the NQ100_m to revisit its recent high at the 15,300 mark.

Article by ForexTime