How US stock indices have gained despite banking crisis
US stock markets rebounded overnight after yesterday’s UBS-CSFB takeover removed a European banking pressure point as markets paused for breath ahead of Thursday’s FOMC meeting.
Despite the destruction of wealth across the US banking sector, estimated to be worth around US$453 billion in market capitalization over the past seven trading sessions, the S&P500 is broadly flat, and the Nasdaq is up almost 6% in the same period.
The rally in the Nasdaq has come as the interest rate market has gone from expecting rate hikes to expecting rate cuts over the past week.
Please find our FOMC preview here.
As such, there is now a tailwind supporting tech giants including Apple, Microsoft, Google, Meta, Amazon and NVIDIA. The six stocks have gained approximately $440 billion in market cap over the past week.
Providing another possible layer of stability, headlines today state that US officials are looking at ways they can temporarily expand the Federal Deposit Insurance Corporation to cover all deposits if the banking crisis expands.
Systematically Important Banks (SIBs) carry a Fed guarantee in contrast to deposits at smaller regional banks. The possible expansion would eliminate the recently created two-tiered US banking system, which in turn would help end the outflow of deposits from regional banks.
S&P 500 technical analysis
The S&P 500 has spent the past week gyrating on either side of the 200-day moving average (MA) at 3945, which has negated its directional importance in the short term.
Stepping back, the S&P 500 remains below a layer of downtrend and horizontal resistance 4015/35 area, and while below here, downside risks remain towards 3788 and then to medium support at 3600/3500.
A sustained break above 4015/35 would allow a more constructive picture to emerge.
S&P 500 daily chart
Nasdaq technical analysis
As outlined above, expectations of interest rate cuts have supported tech stocks and helped the Nasdaq springboard back above the 200-day MA at 11,950 after its false break lower last week.
Providing that the Nasdaq holds above 11,947 (closing basis) and last week’s 11,806 low, we continue to expect the rally from the October lows to take another leg higher towards the August 13,740 high.
A sustained close back below the 200-day MA at 11,947 would negate the positive bias.
Nasdaq daily chart
Dow Jones technical analysis
Following its break below the 200-day MA last week, the Dow Jones has spent the past three sessions tentatively confirming the break lower.
Providing the Dow Jones remains below the 200-day MA at 32,274 and below a band of resistance formerly, support at 32,550/600, the expectation is for the Dow Jones to trade lower towards support at 30,000.
A sustained break back above 32,600 would negate the negative bias.
Dow Jones daily chart
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