Trade of the Week: SPX500_m demands proof out of Nvidia, Jackson Hole

<p><strong>By <a href="http://investmacro.com/contributors/contributor-profile-forextime/">ForexTime</a></strong></p>
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<ul>
<li>S&amp;P 500 on course to end 5-month winning streak</li>
<li>Nvidia’s forecasted 10% post-earnings move may jolt SPX500_m</li>
<li>Friday speech by Chair Powell to shape Fed rate hike bets</li>
<li>Last Friday’s (August 18th) “doji” points to market indecision ahead of such a pivotal week</li>
<li>Listed below: potential scenarios, support and resistance levels</li>
</ul>
<h3><span lang="EN-US" xml:lang="EN-US">It’s been an angsty August so far for the S&amp;P 500. </span></h3>
<p><span lang="EN-US" xml:lang="EN-US">This benchmark index, which is widely used to measure the overall performance of the US stock market, has <strong>fallen by about 4.8% so far this month.</strong></span></p>
<p><span lang="EN-US" xml:lang="EN-US">The S&amp;P 500 also appears headed for its <strong>worst monthly performance </strong>since <strong>December 2022</strong> <strong>(down 5.9%)</strong>, while its <strong>previous monthly drop</strong> was back in <strong>February 2023 (down 2.6%).</strong></span></p>
<p>&nbsp;</p>
<h3><span lang="EN-US" xml:lang="EN-US">This week, the SPX500_m (which tracks the underlying S&amp;P 500) is at the mercy of <strong>two of the largest market themes of 2023 </strong>coming head-to-head:</span></h3>
<p>&nbsp;</p>
<h2><strong>1) AI-mania: just hype? or real earnings booster?</strong></h2>
<p><span lang="EN-US" xml:lang="EN-US">Investors hope that artificial intelligence would supercharge corporate earnings for decades to come, even as the technology promises to change our everyday lives.</span></p>
<blockquote><p><em><span lang="EN-US" xml:lang="EN-US">And few have benefited from such expectations more than <strong>Nvidia</strong>.</span></em></p></blockquote>
<p><span lang="EN-US" xml:lang="EN-US">This chipmaker’s stocks still boast of a <strong>196.3% year-to-date climb</strong>, being the <strong>best-performing stock</strong> on the S&amp;P 500 so far this year, despite having dropped 8.8% from its all-time high set on July 18th.</span></p>
<p><span lang="EN-US" xml:lang="EN-US">This chipmaker still has a <strong>market cap of over US$ 1 trillion</strong> (that’s $1,000,000,000,000), making it the <strong>4th largest stock on the benchmark S&amp;P 500 index.</strong></span></p>
<blockquote>
<h3><em><span lang="EN-US" xml:lang="EN-US">Nvidia is due to release its latest quarterly results after US markets close on Wednesday, August 23rd.</span></em></h3>
</blockquote>
<p><span lang="EN-US" xml:lang="EN-US">Markets are currently predicting that this stock could move by <strong>10.2%</strong>, either up or down, on Thursday – the day after Nvidia’s earnings release.</span></p>
<p><span lang="EN-US" xml:lang="EN-US">Of course, whether this stock climb higher or drops lower depends on the reaction to Nvidia’s financial results last quarter, as well as its forward guidance for future earnings.</span></p>
<blockquote>
<h3><em><span lang="EN-US" xml:lang="EN-US">Broadly speaking, if Nvidia can convince markets that the AI-hype is truly translating into a meaningful earnings boost, that could help the SPX500_m pare recent losses.</span></em></h3>
</blockquote>
<p>&nbsp;</p>
<p>&nbsp;</p>
<h2><strong>2) US interest rates – higher for longer?</strong></h2>
<p><span lang="EN-US" xml:lang="EN-US">The annual Jackson Hole Economic Symposium, organized by the Kansas City Fed, is set to happen between <strong>August 24th – 26th</strong>, bringing together the world’s top central bankers, policymakers, and economists.</span></p>
<blockquote>
<h3><em><span lang="EN-US" xml:lang="EN-US">The highlight is, of course, the speech by Fed Chair Jerome Powell, on Friday, August 25th.</span></em></h3>
</blockquote>
<p><span lang="EN-US" xml:lang="EN-US">After all, Chair Powell leads the world’s most influential central bank – the US Federal Reserve.</span></p>
<p>&nbsp;</p>
<p><span lang="EN-US" xml:lang="EN-US">Since 2022, markets have been obsessing over how high the Fed would send US interest rates.</span></p>
<p><span lang="EN-US" xml:lang="EN-US"><a href="https://www.forextime.com/market-analysis/whats-jackson-hole-and-why-it-matters-nasdaq-100">My article this time last year</a> (dated 22 August 2022), in previewing last year’s Jackson Hole symposium, carried these words:</span></p>
<blockquote><p><span lang="EN-US" xml:lang="EN-US">“</span><em><span lang="EN-US" xml:lang="EN-US"><a href="https://www.forextime.com/market-analysis/whats-jackson-hole-and-why-it-matters-nasdaq-100">And here’s the biggest question on everyone’s minds: <strong>how much higher will the Fed hike US interest rates?</strong></a>”</span></em></p></blockquote>
<p><span lang="EN-US" xml:lang="EN-US">12 months later, yet the same question remains in play.</span></p>
<p><span lang="EN-US" xml:lang="EN-US">There’s also an <strong>added layer</strong> to that question posed in August 2023:</span></p>
<blockquote>
<h3><em><span lang="EN-US" xml:lang="EN-US">“<strong>How long </strong>will the Fed maintain its benchmark rates at its peak, before considering a rate cut?”</span></em></h3>
</blockquote>
<p>&nbsp;</p>
<p>Here are the market’s current expectations surrounding US interest rates:</p>
<ul>
<li><span lang="EN-US" xml:lang="EN-US"><strong>merely an 11% chance</strong> that the Fed would trigger <strong>another 25-basis point HIKE </strong>at its <strong>September </strong>FOMC meeting</span></li>
<li><span lang="EN-US" xml:lang="EN-US"><strong>one-in-three chance (38% odds)</strong> that there would be <strong>one more 25-bps HIKE </strong>by the Fed <strong>between now and end-2023</strong></span></li>
<li><span lang="EN-US" xml:lang="EN-US"><strong>one-in-three chance (35% odds)</strong> that there would be <strong>a 25-bps <em>CUT</em></strong> by <strong>March 2024</strong></span></li>
<li><span lang="EN-US" xml:lang="EN-US"><strong>87% chance</strong> of a <strong>Fed rate <em>CUT </em></strong>by <strong>May 2024</strong></span></li>
</ul>
<p>&nbsp;</p>
<h3>How did markets react to Powell’s speech at 2022’s Jackson Hole event?</h3>
<p>As a reminder, Chair Powell’s speech back on<strong> 26 August 2022</strong> triggered a <strong>3.4% drop</strong> in the S&amp;P 500 on the day.</p>
<p>The benchmark stock index went on to fall by a further <strong>11.85%</strong> after the previous symposium concluded, reaching its trough in October, before going on to stage an AI-fuelled rally since (albeit with a pullback so far in August 2023).</p>
<p>It was clear then that traders and investors willingly took to heart Powell’s tough messaging back then about “unusually large” Fed rate hikes.</p>
<blockquote><p><strong><em>Although the days of 75-bps Fed rate hikes are now relegated to the past, markets remain primed to react to Powell’s policy signals this week.</em></strong></p></blockquote>
<p><img decoding="async" class=" lazyloaded" src="https://www.forextime.com/s3-static/users/user16/SPX500_mDaily%20-%202022%20jackson%20hole.png" alt="" width="1024" height="768" data-entity-type="file" data-entity-uuid="243100d3-6986-4ab9-b639-e30c99853d54" data-src="/s3-static/users/user16/SPX500_mDaily%20-%202022%20jackson%20hole.png" /></p>
<p>&nbsp;</p>
<h3>As for Chair Powell’s speech ahead of this coming weekend, here are some <strong>potential scenarios</strong> that may affect the <strong>SPX500_m</strong>:</h3>
<ol>
<li>If Chair Powell delivers a <strong>higher-for-longer </strong>message, i.e. US interest rates could go even higher and stay at that peak for longer than what markets currently expect, that <strong>could drag the SPX500_m even lower.</strong><em>After all, tech stocks generally do not like the thought of higher US interest rates.</em>
<p>And the biggest components of the S&amp;P 500 are Big Tech names such as Apple, Microsoft, Amazon, Alphabet, and of course, <strong>Nvidia</strong>.</li>
<li>On the other hand, if <strong>Chair Powell surprises markets</strong> and suggests that the <strong>Fed has raised its benchmark rates high enough</strong> to finally subdue multi-decade high inflation in the US, that <strong>could be cause for rejoicing among SPX500_m bulls.</strong></li>
</ol>
<p>&nbsp;</p>
<p>&nbsp;</p>
<h3><strong><span lang="EN-US" xml:lang="EN-US">From a technical perspective … </span></strong></h3>
<p><span lang="EN-US" xml:lang="EN-US">The <strong>doji </strong>candlestick formed last Friday, August 18th, points to <strong>indecision </strong>among traders, especially leading into such a week that promises stern test for the US stock market.</span></p>
<blockquote><p><em><span lang="EN-US" xml:lang="EN-US">This doji could herald a period of price consolidation, or perhaps even the formation of a new trend.</span></em></p></blockquote>
<p>&nbsp;</p>
<p><span lang="EN-US" xml:lang="EN-US">Keeping in mind the looming fundamental catalysts as well was technical setups …</span></p>
<h3><strong><span lang="EN-US" xml:lang="EN-US">Here are some key levels to look out for on the SPX500_m daily chart:</span></strong></h3>
<p><strong><span lang="EN-US" xml:lang="EN-US">POTENTIAL SUPPORT</span></strong></p>
<ul>
<li><span lang="EN-GB" xml:lang="EN-GB"><strong>4335</strong>:  intraday low on August 18th/late-June lows</span></li>
<li><span lang="EN-GB" xml:lang="EN-GB"><strong>100-day SMA</strong> and key Fibonacci level</span></li>
<li><span lang="EN-GB" xml:lang="EN-GB"><strong>4301 – 4260:</strong> early-June range</span></li>
</ul>
<p>&nbsp;</p>
<p><strong><span lang="EN-US" xml:lang="EN-US">POTENTIAL RESISTANCE</span></strong></p>
<ul>
<li><strong>4400</strong>: psychologically-important mark/Fib retracement</li>
<li><strong>4452 – 4463:</strong> June cycle highs</li>
<li><strong>50-day simple moving average (SMA)</strong></li>
</ul>
<p>&nbsp;</p>
<p><img decoding="async" loading="lazy" class=" lazyloaded" src="https://www.forextime.com/s3-static/users/user16/SPX500_mDaily_2.png" alt="" width="1024" height="768" data-entity-type="file" data-entity-uuid="2d0806bc-219b-4776-9ea6-488197527f44" data-src="/s3-static/users/user16/SPX500_mDaily_2.png" /></p>
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<p><img decoding="async" loading="lazy" class="size-full wp-image-54242 alignleft" src="https://www.investmacro.com/articles-analysis/wp-content/uploads/2014/07/Forex-Time-Logo.png" alt="Forex-Time-Logo" width="262" height="90" /><strong>Article by <span><a href="https://www.investmacro.com/contributors/contributor-profile-forextime/">ForexTime</a></span></strong></p>
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