S&P 500 Needs Support From Tech Stocks To Stay Above 3400

Tech Stocks Will Likely Decide The Direction Of S&P 500 In The Upcoming Trading Sessions

The sell-off in tech stocks was stopped on Friday, and S&P 500 managed to return back above the 3400 level.

Today, the U.S. stock market is closed for the Labor Day holiday. Tomorrow, the direction of tech stocks will be in focus once again due to their major impact on the direction of the whole S&P 500.

The key question is whether the market will once again find itself under pressure as valuation of leading tech stocks looks generous even after the recent sell-off.

The last trading session highlighted the fact that there is plenty of money on the sidelines which is ready to be deployed once stock prices fall significantly over a short period of time.

In this light, it looks like S&P 500 will resume its upside trend in case it manages to stay above the 3400 level in the next few trading sessions.

The Sell-Off In The Oil Market Continues

WTI oil declined below the $40 level and continues to lose ground amid worries about the strength of oil demand.

While the recent economic data has been mostly encouraging and the U.S. Unemployment Rate declined to 8.4%, traders worry that continued problems on the coronavirus front will put pressure on the speed of oil demand recovery.

At this point, there are clear signs of the second virus wave in major European countries while India and several Latin American countries struggle to contain the first wave.

In this environment, oil traders have to price in the risks of additional virus containment measures which inevitably hurt the demand for oil. In case oil stays below the $40 level, oil-related equities will continue their downside trend and put pressure on S&P 500.

Pivotal Moment For The U.S. Dollar

The U.S. dollar lost a lot of ground against a broad basket of currencies since mid-March, and this move provided material support to dollar-denominated stocks and commodities.

Recently, the U.S. Fed stated that it would adopt an average inflation target of 2%, which will lead to years of low interest rates. Theoretically, this is a very bearish development for the U.S. dollar.

However, the American currency is currently trying to rebound, and the U.S. Dollar Index is attempting to get above the key resistance level at 93. Traders bet that other central banks will follow Fed’s steps.

If this happens, U.S. dollar will gain material upside momentum which can hurt stocks and commodities. On the other hand, the continuation of the downside trend will provide additional support to U.S. stock market.

For a look at all of today’s economic events, check out our economic calendar.