US markets push higher again after strong earnings, investors prepare for rate decisions

The XJO is expected to open higher this morning following a strong rally in the U.S on Friday. Their futures have edged into the red however, and the SP500 stalled at key resistance. This will likely translate to our market holding our own consolidation range and key resistance at about 7,350 to 7,375. Our market will also be reluctant to make any further headway with the RBA interest rate decision tomorrow at 2:30 (AEST).

We are expecting a rate hold, but with recent strong jobs data, there is a stronger chance the RBA becomes more hawkish. In recent history, RBA announcements have rarely moved markets aggressively, so we shouldn’t expect a strong reaction tomorrow. It does, however, underpin a broader sentiment to the market, which has recently remained vigilant with the hopes that we have seen peak rates. If this message changes, then so too could the broader sentiment.

Regardless, we will continue to be push and pulled by how the U.S trades from a day-to-day perspective – and thus we will need to see how they trade at resistance tonight. If they push through or fail, our market will likely follow suit – albeit with less volatility.

Aside from the RBA decision tomorrow, in the week ahead we have: U.S PMI data on Tuesday and Thursday, Eurozone CPI also on Tuesday, and U.S unemployment on Friday. The biggest piece of news however will be the U.S Interest rate decision on Thursday morning. They are expected to raise rates by a further 25 basis points, but markets will be looking at how dovish or hawkish Powell is in his future guidance.

US Markets

US shares closed higher again on Friday, continuing their bullish momentum from the strong gains seen in Thursday’s session. The optimism was driven by strength in technology stocks, which have rallied after better than expected earnings results from the current quarterly earnings season. The strength of the past month has also driven the US VIX volatility index to its lowest level since 2021. Overall this earnings season has restored some optimism into the minds of investors, which has helped prices to maintain their highs. However, this week there will be several key events to test the resolve of investors. Chief amongst these will be the US Federal Reserve interest rate decision on Wednesday night. Markets are expecting that the ‘Fed’ will lift rates by 25 basis points, and that this will be it for the current tightening cycle.

Nine of the eleven sector groups of the SP500 closed higher on Friday, with only Discretionary and Utilities closing lower. Energy stocks were the best performers, followed by Financial, Real Estate, and Materials stocks.

The SP500 returned straight to the recent high around 4,160 index points, which is a resistance level. Should that break, we could see a move towards 4,200. Should the index fall from here, it will have to close below 4,070 before further selling looks likely.