S&P500 set for record open after Fed boost

Summary:

• Large gains across US indices after dovish Fed

• Philly Fed shows sharp drop

• S&P500 moves up to new record high

Despite lofty expectations and a high bar to pass, Chair Jerome Powell and his fellow FOMC members seem to have delivered just what stock market investors wanted to hear with a clear dovish shift seen in the US central bank. The initial reaction in equities was typically volatile but as the dust settles a pretty firm bid has taken hold and pushed stock markets higher around the globe. US benchmarks are called to open up by around 1% this afternoon, with the S&P500 called to begin at its highest ever level.

The US500 broke out of a bull flag after the Fed meeting and has continued to rise since, with price now around 50 points higher since 7PM last night. Source: xStation

There have been two economic releases of note this afternoon from the US with the latest read on the manufacturing sector disappointing while weekly employment figures remain solid. The Philly Fed manufacturing index for the current month slumped to its lowest level since February in coming in at +0.3, well below the +10.4 expected and the +16.6 prior. New orders (+8.3 vs +11 prior) and Employment (+15.4 vs +18.2) components also both showed drops while a sizable decline in prices paid (+12.9 vs +23.1) suggests that there is little by the way of inflationary pressure here.

Even though it is not quite as weak, the drop in the headline here supports the fall seen in the Empire state equivalent at the start of the week and together they suggest that manufacturing activity in the US is in danger of slowing to a standstill. While this would appear to be bad news for stocks, we seem to be in a position where soft data is supportive of equities as it will encourage the Fed to provide additional stimulus and the initial reaction in US futures actually saw a pop up to the daily highs.  At the same time we also got the weekly initial jobless claims which came in at 216k vs 220k expected and 222k prior.

The Philly Fed index for June fell sharply and together with the NY equivalent suggest that manufacturing activity is clearly slowing in the US. Source: Bloomberg

The S&P500 has now completed its recovery from the sell-off seen in May with the market reaching a new record high in the past hour. A daily close above the prior high of 2961 would further support this breakout and given the strength of the recent bid it would not be too surprising if the market printed a 3000 handle before the week is out. Whichever way you look at it the market remains in an uptrend and in the absence of any reversal signals the path of least resistance remains higher.

The S&P500 has moved above the April high of 2961 to print a new record peak today. Can the market hit the 3000 level before the week is out? Source; xStation