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S&P 500, Nasdaq, Dow grind support as markets weigh disappointing data

The S&P 500, Dow and Nasdaq 100 struggle to find strong direction despite disappointing economic data.

Source: Bloomberg

Corporate earnings season is coming to an end and investors are focusing on economic data, which is becoming a larger driver of market movements. Today, a couple items on the Economic Calendarfueled recession fears as it showed a disappointing picture both in the U.S. housing sector and in manufacturing and services activity. New home sales declined sharply in July and business activity from manufacturing and service providers showed weaker demand in August.The contraction in the Service sector is worrisome as it accounts for 76.9% of U.S. GDP.

The initial reactionwas a decline in US Treasury yields, a rally in Gold and a drop in the US dollar index (DXY). The euro rebounded from a low of 0.9899 to climb back above parity while the USD/JPY fell approximately 180 pips in the aftermath of the release. EUR/USD is now trading at 0.9968, while USD/JPY is at 136.78.

Also of note is the US stock market.Major indices had their worst day since June yesterday, however, after today’s negative data, indices showed gains as an initial reaction to lower yields- but then failed to follow through as yields rebounded.

The Dow and S&P 500 closed with a loss of 0.47% and 0.22% respectively. The Real Estate sector suffered a sharp drop of 1.46% in the face of a 12.7% decline of new home sales in July, the worst reading since 2016. The best performing sector was Energy, gaining more than 3.5% after the Saudi Energy Minister said that OPEC+ members could cut output in the future to “stabilize” the market. The WTI contract for October closed at 93.60. The next level to watch is around $95.08 pb where the 200 Day Moving Averagetouches the 23.6% Fibonacci retracement.

Light crude oil futures – daily chart

Source: TradingView

Regarding earnings, consumer discretionary companies such as Macy’s and Dick’s Sporting Goods surprised markets by reporting better than expected revenue. Meanwhile, technology stock Zoom Video Communications missed expectations and lowered its full year guidance, which contrasted the strong results by Palo Alto Networks Inc.

Notably, negativeeconomic data and mixed earnings from tech companies did not seem to weigh much on the Nasdaq. The index ended flat. However, it will be interesting to see how it responds to Fed Chairman Jerome Powell's highly anticipated speech on Friday at the Jackson Hole Symposium.

The area to watch on the Nasdaq is between 13,000 and 12,700 wherethere is confluence with the 100-day SMA and a strong support zone.

NASDAQ 100 - daily chart

Source: TradingView

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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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