US Stocks Close Higher Amid Anticipation of Key Economic Data, Hedge Funds Shift to Selling

U.S. stocks closed higher, driven by anticipation of key inflation data expected later in the week, which could offer more insights into future interest rate changes. Trading volumes were low due to the Memorial Day holiday but are projected to increase with significant economic reports coming up, including revised first-quarter GDP data and Friday’s core personal consumption expenditures (PCE) data, the Federal Reserve's preferred inflation measure.

On Monday, U.S. stocks were boosted by gains in the Technology, Utilities, and Basic Materials sectors. The NASDAQ Composite, buoyed by NVIDIA Corporation (NASDAQ:NVDA), ended at a record high last week. Both the S&P 500 and Dow Jones Industrial Average approached record levels but were restrained by losses in other sectors, partly due to concerns over prolonged high interest rates, which reduce the attractiveness of riskier assets like equities by limiting market liquidity.

On the other hand, hedge funds have recently sold US equities at a rate not seen since early January, reversing a trend of five consecutive weeks of net buying. This shift was detailed in a report by Goldman Sachs' prime brokerage, which attributed the sell-off to recent positive economic indicators and the Federal Reserve's firm stance on maintaining high interest rates for an extended period.

The sell-off spanned all 11 US sectors for the week ending May 24, with the heaviest selling in industrials, information technology, financials, energy, materials, and real estate. Cyclical sectors faced particularly intense selling, marking the largest notional net selling since December. The industrial sector, encompassing machinery, ground transportation, professional services, and passenger airlines, was notably affected, experiencing 11 consecutive sessions of net selling and the largest two-week net selling in over a decade.

Meanwhile, on Tuesday, the dollar weakened slightly but remained within tight ranges against other currencies ahead of crucial inflation data from major economies. Recent U.S. economic data has been mixed, causing uncertainty among policymakers regarding the timing and extent of rate cuts.

Traders have adjusted their expectations, now pricing a 50.7% probability that the Fed will keep rates steady and a 43.6% chance of a 25 basis point rate cut, according to the CME Fedwatch tool. Despite some anticipated cooling in inflation, it is projected to remain above the Fed’s 2% annual target. Therefore, the outlook for the overall US stock market during this period may be somewhat restrained, given the persistent volatility and risk.

Data for Technical Analysis (1H) CFD US30 DJIA

Resistance : 39098.4, 39101.0, 39105.2

Support : 39090.0, 39087.4, 39083.2                             

1H Outlook

Source: TradingView              

Buy/Long 1 If the support at the price range 39080.0 - 39090.0 is touched, but the support at 39090.0 cannot be broken, the TP may be set around 39100.9 and the SL around 39075.0, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 39098.4 - 39108.4, TP may be set around 39124.0 and SL around 39085.0, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 39098.4 - 39108.4 is touched, but the resistance at 39098.4 cannot be broken, the TP may be set around 39089.9 and the SL around 39113.0, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 39080.0 - 39090.0, TP may be set around 39072.0 and SL around 39103.0, or up to the risk appetite.       

Pivot Points May 28, 2024 03:09AM GMT