US stock markets poised to open at record highs amid strong tech appetite.
Intel shares rose 20% pre-market following Nvidia’s $5 billion stake investment.
S&P 500 futures rally as dip-buying prevails despite valuation concerns.
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US stock markets look set to open at fresh record highs, a day after the Fed’s expected decision was followed by warning of “no risk-free paths” to interest rates, which caused a bit of volatility. However, index futures have since rallied amid insatiable risk appetite for technology stocks and as bond yields dip back down.
Intel (NASDAQ: ) shares jump 20% in pre-market on news that Nvidia (NASDAQ: ) has agreed to buy $5 billion stake in the chipmaker. With the at new highs and still looking strong, concerns about overstretched valuations have been put on a back burner for now.
However, this might come to the forefront as we head towards the start of Q3 earnings season in October. For now, dip-buying remains the name of the game.
Fed’s Guidance of Two Cuts Supports Stocks as Valuation Concerns Ignored
The post-FOMC dip was bought yet again as investors welcomed a more united FOMC and their guidance of two more rate cuts. Investors are convinced the Fed will look to support jobs by loosening its policy, and not worry much about the short-term direction of inflation. As futures hit new highs, down went Treasury yields and the dollar, and up went gold and most foreign currencies.
Investors’ focus will remain on incoming economic data, which could determine the pace of the Fed’s easing beyond 2025.
Fed Focused on Employment, Not Inflation
The latest gains come after markets were unsettled by Fed Chair Jerome Powell’s warning that “there are no risk-free paths” to policy, after the median FOMC forecast had indicated in the dot plots that two more rate cuts for 2025 were in the pipeline.
There are some concerns that if companies start passing on the higher input costs arising due to the tariffs, this could see inflation spike again and lead to a pause in rate cuts, or even a reversal in monetary policy altogether. For now, though, those concerns have been put on a back burner amid signs of a sharp slowdown in hiring, which could lead to higher unemployment.
So, while cutting interest rates with inflation this high may be counterintuitive, the Fed seems to have put more weight on the employment bit of its dual mandate.
Valuation Concerns
So far, stock market investors have bought every dip, mainly thanks to the AI optimism and the big tech delivering consistently beating earnings estimates, and thereby justifying their high valuations. But outside of the tech sector, there are concerns that a bubble might be brewing, which does not have the backing of the strong growth seen in tech names.
According to Bloomberg, an index of S&P 500 companies that excludes technology has risen 13% over the last year compared to a 6.4% increase in profits.
Worryingly, the materials sector – i.e., chemicals manufacturers, miners, and the like – has climbed 9% this year while earnings have dropped 13%. The worry here is that if the big tech now eases back on, say, profit-taking, the rest of the market may not be able to sustain the rally.
S&P 500 Technical Analysis and Levels to Watch
The bottom line is that the market is still making higher highs and higher lows. As traders, focusing on dip-buying in this sort of environment still makes sense, even if the rally looks quite mature with the RSI again at overbought levels of above 70 on the daily, weekly, and monthly time frames.
The RSI being at these levels may be worrying, but it also highlights the strength of the markets and momentum. This makes it difficult to justify shorting the markets. That strategy might come in handy when we start to see the breakdown of a few important support levels. But for now, the path of least resistance remains to the upside.
A couple of support levels to watch include 6686 and 6611, marking the high and low points from Wednesday, respectively. The latter also coincides with the bullish trend line. Break that and we could see a sizeable drop as stops get triggered. Otherwise, the path towards the 161.8%Fibonacci level at 6991 remains open with interim resistance likely to come in around round handles like 6,700, 6,800, and 6,900.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.