US equities showed signs of recovery after a challenging week, with the Dow Jones falling 1.57% for the week, while the S&P 500 and NASDAQ Composite dropped 0.8% and 0.66% respectively. According to The Hindu BusinessLine, the S&P 500 is currently trading at 7,656.98, with the index having bounced back from a low of 7,580 and showing potential for further gains. The recovery comes after four consecutive sessions of decline that pushed the S&P 500 below the critical 7,700 level amid rising inflation pressures and Treasury yield concerns. The technical breakdown had seen the index trading 27 points below the breakout floor it had defended by just 18 points on Friday.
Treasury yields jumped significantly on Wednesday after the Treasury Department announced it's tripling its buyback operation of longer-dated government debt to $6 billion. The 10-year Treasury note yield rose to 4.857%, reaching its highest level since November 2023 before easing after strong auction demand. The 30-year Treasury yield rose 2.06 basis points to 5.2846% after touching its highest level since August 18. Following the announcement, the yield had briefly climbed above the closely watched 4.8% level on Tuesday as rising oil prices added to concerns about inflation. Even with the increased buyback plan, yields advanced because some on Wall Street anticipated even bigger repurchases by Treasury Secretary Scott Bessent, with some expecting the buyback to reach $7 billion or $8 billion. The yield surge continues to pressure equity markets as investors grapple with the implications of higher interest rates.
Oil prices rose significantly as WTI Crude oil futures spiked more than 5% on sustained worries over near-term supplies in global markets. This marks the highest settle since May for both benchmarks. The latest rise in oil extends its gain from the prior trading day, which put downward pressure on the three major averages in their first session of a holiday-shortened trading week. Brent crude futures settled up 3.36% at $101.21 a barrel, while U.S. West Texas Intermediate futures gained 3.25% to close at $96.05. The oil surge was driven by escalating tensions between the U.S. and Iran that fuel concerns over further disruptions to Middle East energy supplies. As noted by Globalt Investments, oil prices reaching $120 a barrel "will catch the market's attention." The 2% fall in oil prices on Friday aided the US benchmark indices to recover some of their losses, providing temporary relief to equity markets.
The current market setup reveals critical support and resistance levels across major indices. According to The Hindu BusinessLine, S&P 500 support at 7,600 continues to hold well, with the index having bounced back from 7,580 and showing potential for a rise to 7,720 this week. A decisive break above 7,720 will clear the way for a rise to 7,800, while failure to rise above 7,720 could see the index fall back to 7,600 again. For the Dow Jones at 52,578.27, the strong fall below 52,900 has turned the bias negative, with support at 52,200 and potential for further decline to 51,800 if this level breaks. The NASDAQ Composite at 26,333.04 remains stuck between 25,900 and 26,700 over the last three weeks, keeping alive chances of seeing 27,000-27,200 on the upside. The dollar index at 99.09 continues to remain inside the 98.50-99.85 range, with a sustained rise above 99.85 needed for momentum to surpass the psychological 100 mark.
The market now hangs on Friday's August CPI release at 8:30 a.m. ET, which will be the binary event that decides whether the hike debate hardens or cools. A hot jobs report plus a hot CPI would all but force the September hike conversation and drive price toward 7,600, while a soft CPI would cool the rate fear and give bulls a shot at reclaiming 7,700. The Fed is in its blackout window ahead of the September 15-16 meeting, so no policymaker can shape the reaction, meaning the data does all the talking. Wednesday's session was expected to be a quiet placeholder ahead of the CPI release, with the tape likely to trade the levels rather than fresh catalysts. The net picture shows the market gave 7,700 its test and failed it, with the tape now hanging on 7,650 into a critical week. Federal funds futures are pricing in roughly a 60% probability of a Federal Reserve rate hike at next week's meeting**, with markets having increased expectations for tighter monetary policy following stronger-than-expected U.S. employment data released last Friday.
