S&P 500 (SPX) looks to break out again

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  • S&P 500 closed higher as equities continue to consolidate.
  • The energy sector once again leads the way as oil remains strong.
  • Earnings season mixed, but big tech sees Nasdaq lag behind.

Equities continue to catch a bid on Monday as hope swirled for a reopening of the Chinese economy. Those hopes appeared to be dashed midway through the morning, but an article in The Wall Street Journal revived them later. Equities appear to be overlooking the fact that China’s reopening will cause a spike in inflation and oil as the demand side pushes higher. That will mean even higher bond yields, and already this is leading the Nasdaq and tech to repeatedly underperform in the past month.

Inflation does benefit some sectors, obviously energy, but also some areas where companies can pass on higher prices to consumers, who in the initial stages remain relatively price inelastic. We have seen this from consumer staples. Currently, the economy is growing, employment is strong, and consumers are continuing to spend. Pepsi (PEP), Coca-Cola (KO), Domino’s Pizza (DPZ) and airlines have all reported strong earnings with the airlines seeing huge demand due to the weaker dollar. It is not only in the US either. Monday saw Europe’s largest carrier, Ryanair (RYAAY), say that it sees consumers still spending despite price pressures. 
 

S&P 500 (SPX) news

Earnings season has continued with some negative guidance from Lyft (LYFT). Meta Platforms (META) popped on news of job cuts, and Digital World Acquisition Corp (DWAC) soared on hopes for President Trump running in 2024. All eyes will now turn to the midterms to see how that probability rises on the back of Republican’s showing. Apple (AAPL) shrugged off supply chain issues to close in the green after it initially opened lower. 

S&P 500 (SPX) forecast

Technically, the index needs to hold above 3,806 if this rally is to sustain itself. That will then see a move to test resistance at 3,892. If the rally stalls and fails to break 3,806, then the move begins to look increasingly over. A fall to 3,646 and then fresh yearly lows would then be likely. 

SPX daily chart