S&P 500, Nasdaq 100: US economic trajectory key to directional risks

• September is a historically weak month for US stocks
• US economic trajectory likely to influence directional risks
• Despite differences in their constituency, a soft economic landing would normally bode well for S&P 500, Nasdaq 100 and Russell 2000 futures

US data resilience key to sustaining soft landing narrative

September is not the kindest month for US stocks, as my colleague Matt Simpson covered off earlier this week. But just because it’s been a difficult month historically doesn’t automatically mean it’s going to be a difficult month this year. I’m far more interested in the trajectory for the economy given that will feed through to expectations for earnings growth and how much the Fed may need to cut interest rates to underpin demand.

After the fear sparked by July’s nonfarm payrolls report a month ago, the data since doesn’t suggest the US is entering a death-spiral, especially with jobless claims showing no sign of ramping higher as witnessed at the start of prior recessions.

If this resilience continues to be on display during this risk-laden week, it may bode well for US indices despite seasonality risks, especially cyclical names heavily dependent on prevailing economic conditions. But if concerns resurface, we could be in for a repeat of the rout seen in early August.

Thankfully, major indices remain respectful of former levels, providing a potential playbook to build trade setups around.

S&P 500 bias skewed higher

S&P 500 futures remain capped below 5665.25, constantly rejected as traders await confirmation on the health of the US jobs market. As such, it looms as a decent level to establish trades around. Having managed to reclaim former uptrend support and with RSI (14) showing signs of ticking higher, buying dips is favoured over selling rallies in the near-term.

If the price were able to break through 5665.25 and hold there, the proximity of the record highs struck in July would provide a temptation for traders to seek a retest. On the downside, dips towards and below 5584.75 have been bought in recent weeks, making that the first downside level of note with the 50DMA the next after that. Below, there’s not a lot to speak of until 5437.

If the price were to break and close below the uptrend, the bias would switch from bullish to neutral/bearish.

Nasdaq 100 capped at 50DMA before data deluge

Nasdaq 100 futures are similar capped ahead of the economic data deluge, unable to break above the 50-day moving average with any gusto over the past week. As such, it can be used to build trade setups around, depending on how the price action evolves.

Remaining in the uptrend it’s been in since the start of 2023 and with RSI (14) pushing higher, the bias remains higher near-term. If the price were to break above the 50DMA and hold there, watch to see how the price interacts with the downtrend dating back to the record highs set in July. If it manages to push through, it would add to the case for upside, bringing a potential retest of 20026.75 into play. Beyond, 20371 and 20983.5 are other potential topside targets.

On the downside, 19204, 18725 and 200DMA are levels of note before the January 2023 uptrend emerges.

Russell 2000 sandwiched heading into PMI

Of all US stock indices, Russell 2000 futures are arguably the most sensitive to perceived hard and soft landing risks. 

RUT futures sit at an interesting juncture on the charts, sandwiched between uptrend support and downtrend resistance dating back to the highs set in July. While the latter has been breached on several occasions since, the price has never managed to close above it, making it potentially important.

If the price breaks and closes above it, 2249.3 is the first level of note before the July highs of 2320.5 come into play. If the price breaks to the downside, 2186.4, the 50DMA and 2140.5 may offer support on pullbacks depending on prevailing sentiment.

Unlike larger stock indices, RSI (14) is trending mildly lower, providing no significant signal on directional risks.

As the first major data point markets will receive on the health of the US economy this week, Tuesday’s ISM manufacturing PMI for August may set the tone markets run with heading into payrolls later in the week.

-- Written by David Scutt

Follow David on Twitter @scutty