The S&P 500 closed 1.6% higher on Tuesday, thanks to gains in tech stocks. In addition, investors are eagerly awaiting the latest US labor market data to know the possible actions of the Federal Reserve. But based on the recent ISM data, it is likely that the central bank will reduce bond purchases soon.
The rally of the S&P 500 above the 100 MA helped allay concerns about a market correction. But many are still worried because of heightened inflation, weakening recovery, spreading energy crisis and political divisions in the US.
"While some parts of the stock market have declined more than others, we still have a long way to go to achieve an actual correction in major stocks. It is impossible to get overly worried about these incredibly modest market declines, which are mostly concentrated in highly overpriced technology stocks, "said David Bahnsen, CIO of the Bahnsen Group.
The IT sector of the S&P 500 was down 5.4% from its high in August, as rising inflation and Treasury yields caused the fast-growing premium companies to rotate. Meanwhile, the energy sector is up 17% from its low in September, as Europe prepares for the winter energy crisis.
"I think we're going to most likely continue this pattern of pretty rapid sector shifts," said Charles Schwab strategist Liz Ann Sonders. "You've got these rotational corrections that have been happening under the surface, and yes, the deterioration has been more significant recently in the Nasdaq, but throughout the course of this year, you've seen various periods where breadth deterioration was more severe in areas like the Nasdaq or small cap. "
Meanwhile, Lauren Goodwin, an economist and portfolio strategist at New York Life Investments, said: "The nonfarm payrolls report will be released on Friday and will give us a sense of how the Delta variant has impacted the employment environment. We don't expect the report to have a meaningful market impact; COVID-19 cases are also on the decline again, and Federal Reserve communication points to reducing their market support as long as the report is 'decent.' "
Other events to look out for are:
- policy decision of the Reserve Bank of New Zealand;
- US NFP report;
- speech of Atlanta Fed President Raphael Bostic;
- data on US oil reserves.
