S&P 500 Another Thursday Bounce After CPI-Fueled Sell-Off

S&P 500 Talking Points:

• All the talk of an AI bubble has the world on edge and yesterday’s sell-off saw many proclaiming that the bubble had burst. In reality, we’re still in the early innings of whatever this will become.
• Of late, there’s been a tendency for late-week bounces to develop and so far this week we’re seeing another, with a significant swing low on Thursday morning.

Late-week rallies have been a thing for US equities over the past month and this morning is sticking with that script, as an initial sell-off on the back of the PPI report found support at a huge spot – and that’s been followed by a sizable rally.

This Thursday bounce echoes what’s happened for the past six Thursdays, highlighted on the below chart with vertical lines.

S&P 500 Futures Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

The Friday Set Up in Stocks

While a few items of worry had started to show, with a larger sell-off in the Nasdaq and NVDIA leading the way lower, there’s been a pattern of late-week rallies of late likely due to the fear of holding short positions into the weekend. With President Trump pumping markets via comments as we are now just a few weeks away from mid-term elections, it can be a difficult time to be caught short, and I think that’s played a role.

Perhaps the larger question is what happens in the scenario where Republicans lose the House, which seems likely at this point. As President Trump has warned already, Democrats winning either house of Congress brought an economic threat to the country.

At this point, however, bulls are still in the ballgame and the weekly chart of the S&P 500 shows that well, as price has, so far, held at a big spot of prior resistance. The patterning is a rising wedge, which could point to bearish reversal potential, but as looked at earlier in the week, the more vulnerable area appears to be the high-flying tech stocks that led the way from the 2022 lows.

S&P 500 Futures Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro