S&P 500 and Nasdaq 100: Markets Rebound Amid Political Uncertainty and Fed Speculations

S&P 500 Futures Edge Higher

S&P 500 futures inched up Monday following last week’s significant losses, as investors shifted focus from megacap technology stocks to smaller names. The broad market index experienced its worst weekly decline since April, with the S&P 500 and Nasdaq Composite falling nearly 2% and 3.7%, respectively.

At 11:44 GMT, Dow Futures are trading 40614.00, up 52.00 or +0.13%. S&P 500 Index Futures are at 5582.25, up 28.50 or +0.51% and Nasdaq 100 Index Futures are trading 19879.75, up 166.75 or +0.85%.

Small Cap Performance

The Russell 2000, tracking small caps, outperformed major indices last week, gaining nearly 2%. This trend reflects investors’ growing appetite for risk and diversification. However, experts caution that it’s too early to determine if this small cap rally is sustainable or merely a temporary shift in market sentiment and investor behavior.

Biden’s Withdrawal Reshapes Presidential Race

President Joe Biden’s decision to drop out of the presidential race and endorse Vice President Kamala Harris as the Democratic nominee has injected uncertainty into the markets. This move could potentially unwind the “Trump trade,” which had been pricing in another term for the former president.

Verizon Earnings and Fed Policy in Focus

Traders are closely monitoring upcoming earnings reports and central bank policy. The market has priced in a 93% likelihood of a Federal Reserve interest rate cut in September, driving investors towards rate-sensitive stocks such as small caps and industrials. Verizon is set to release before the opening bell on Monday.

Bank of America Shares Dip on Berkshire Sale

Bank of America shares fell over 1% in premarket trading after Berkshire Hathaway sold approximately $1.48 billion worth of the bank’s stock, reducing its stake by 3.3%.

Market Outlook

Analysts expect short-term volatility across asset classes due to the political shakeup. The U.S. dollar may soften as the “Trump trade” unwinds, while stocks could experience a near-term dip. However, some experts view potential pullbacks as buying opportunities, given expectations of Fed rate cuts and resilient economic growth.

Forecast

The market outlook appears cautiously bullish in the medium term, despite short-term uncertainties. Factors supporting this view include:

1. Anticipated Fed rate cuts
2. Resilient economic and earnings growth
3. Potential for increased market participation from diverse sectors

However, investors should remain vigilant as the political landscape evolves and monitor upcoming economic data, particularly the personal consumption expenditure numbers due later this week, for further direction.

Technical Analysis

The E-mini S&P 500 Index is edging higher on Monday, but I think that’s just a knee-jerk reaction to Friday’s steep loss. Our work suggests the benchmark index still has some work to do on the downside with the 50-day moving aveage at 5487.27 the key target. This level represents value and should  be more attractive to investors. Additionally, with the short-term trend down, traders are still in “sell the rally” mode.