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THE GIST (“THE WHAT”)
Building on previous session’s optimism, the S&P 500 index extended its rebound following a series of optimistic news headlines. President Trump downplayed the fears of an imminent recession while underscoring the continuation of U.S – China trade talks. Additional stimulus in the form of cheap funding for businesses announced by the People’s Bank of China further fueled investor optimism.
Gapping higher at the open, the index maintained early gains to close solidly higher at 2923.65, up 34.97 points and gaining 1.21% over previous session’s close. Energy, Technology and Communication Services led today’s broad-based relief rally that lifted the index higher for the third straight session in a row.
THE DETAILS (The “How & Why”):
In an attempt to shore up its slowing economy that has been hit hard by trade tensions, China announced major changes to its benchmark interest rate policy and lowered the borrowing costs for businesses. Over the weekend, President Trump downplayed the concerns of recession while tweeting that an end to the prolonged trade war could help ramp up the U.S. economy. The S&P 500 index erased most of last week’s losses with easing of recession jitters and hopes that an amicable trade deal could be on the horizon.
Semiconductor stocks received a solid boost after Commerce Secretary Wilbur Ross announced a temporary reprieve to Huawei Technology, extending a 90-day temporary license which will give more time for domestic companies to ‘wean themselves off’. Qualcomm Inc., Micron Technology Inc. and Cisco Systems Inc. all climbed 2.17%, 3.35% and 3.28%, respectively. NVIDIA Corp was the top gainer within this space, soaring 7.03% on announcing a partnership with Microsoft Corp.
Easing of recession jitters helped lift oil prices that received a further boost from weekend reports of an attack on Saudi oil facility. Energy, Technology and Communication Services sectors outperformed to lead today’s relief rally by 2.14%, 1.56% and 1.39%, respectively. Consumer Discretionary and Industrials also added more than 1% in gains each.
Increasing risk appetite stabilized Treasury yields that edged higher across the curve as global central banks signal monetary easing to stimulate their economies to avert recession. Investors will be closely monitoring the Fed’s Jackson Hole convention this week for insights into the central bank’s future path of interest rate cuts. Banks and financial stocks gained 0.99% alongside rising yields. Wells Fargo & Co, Citigroup Inc., Morgan Stanley and Goldman Sachs Group Inc. all climbed more than 1% apiece.