On Tuesday the equity indices closed poorly and broke a three-day winning streak. However, Wednesday morning the S&P 500 has already recaptured most of its losses as market players speculate what happens next on monetary policy and China trade.
Solid earnings reports from Lowe's (LOW) , Target (TGT) and La-Z-Boy (LZB) are helping to combat recent concerns that a recession is on the horizon. The Trump Administration has also made it clear that it is looking at fiscal stimulus such as a cut in payroll taxes as an insurance policy against further slowing.
The Fed will release minutes of its last meeting this afternoon but the market's main focus will continue to be on the Jackson Hole speech of Jerome Powell scheduled for Friday morning eastern time. It is expected that Powell will set the stage for a quarter-point cut at the next Fed meeting but the main issue that market players will be considering is whether the stage is set for a series of cuts and whether Powell will continue with the narrative that this is just a "mid-course correction" in rates. We will have more on this before the Friday speech but, as is typical, the market is counting on a friendly Fed to provide some support.
Technically, this is a market in a trading range and both dogmatic bulls and bears are going to have a difficult time navigating it. There is clear trading range in the S&P 500 right now with the 50-day simple moving average at 2946 acting as resistance and the recent lows around 2825 serving as support.
This is a big trading range and we are currently at the upper end, which is a good setup for a thrust through resistance levels. The recent worries about a recession have created a "wall of worry" dynamic and that could help generate some upside traction when combined with optimism about what Powell might say on Friday.
At the moment, the market is celebrating solid news from retailers, which is catching the economic bears by surprise. The positive action needs to broaden into other groups, particularly technology, but the bulls have the edge as they take another run at recent overhead resistance.
