SPX Sells Off as Bessent Highlights Growth Strategy to Soothe Debt Fears

S&P 500 Talking Points:

• It was a rough session for US equities as a brief glimpse of optimism from yesterday morning gave way to fear of ballooning deficits and higher yields.
• A key comment from US Treasury Secretary Scott Bessent was making the rounds and it’s something we’ve heard Trump say before, in that given the massive debt accumulating the US will have to ‘grow our way out’ of the situation. The big question now is whether Kevin Warsh and the Fed will assist with that.
• With S&P 500 futures finishing the session at lows the big question now is whether sellers retain control into the weekend or whether we get a buy the dip backdrop on Friday. Nearby support exists in both cash and futures.

It wasn’t very long ago that Presidential pumping of equities was somewhat of a foreign concept. A comment from Obama around the Financial Collapse lows, about it being a good time to buy stocks got particular ire as it was so out of the ordinary. Before that, it was almost as if Presidents ignored the major averages and, instead, would talk around economic concepts that they preferred markets to translate into price action.

Now, though, it’s a regular thing, and despite President Trump being very clearly behind the push towards long equities in his first administration he’s ramped things up in his second. He’s said before when asked about the massive accumulation of US debt, that we have to ‘grow our way out’ of the situation. This alluded to the AI boom and the fact that it, along with crypto, were mechanisms that he saw as conduits for that continued growth. This may have been taken lightly, however, given that he speaks about markets and market prices quite a bit. But making the rounds on social media today was US Treasury Secretary Scott Bessent saying the same thing. And given Bessent’s background in markets and macro, this could take on even more meaning, especially considering the announcement from the day before of larger US Treasury buybacks.

At this point, however, there’s still wide expectation that the Fed will be hiking rates again later this year to the tune of about 66%, and this could complicate matters as higher short-term rates would increase borrowing costs if the Treasury is looking to use short-term financing of longer-term maturing debt.

This also puts more emphasis on inflation data and Kevin Warsh’s speech at Jackson Hole that’s coming up.

For stocks, however, much like the first Trump term and now almost halfway through the second, the intent is clear:  The US wants to push stock prices higher to obviate the worry about massive amounts of debt, and while that doesn’t mean that every day will be green, it does provide motive for a bullish bias especially after pullback scenarios, which we find ourselves in right now.

At this point the S&P 500 is just a little more than 2% away from the all-time-high that was set just last week. The daily chart of SPX is ugly, at this point, with the daily bar closing near the lows after failing to fill a gap, and that was like the day before when an opening gap failed to completely fill. So, there’s clearly some position squaring taking place here and a direct bid feels akin to catching a falling knife.

But, given proximity to prior resistance, around the 7600 level or the 7620 swing high, there’s a few areas for bulls to step in.

SPX Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

S&P 500 Futures

The greater detail and granularity of an around-the-clock market brings a few additional items into the mix, namely the example of resistance at prior trendline support that led to the bearish turn yesterday morning. But – there’s also even more context to a relatable support zone just a little lower, as the 38.2% Fibonacci retracement of the recent rally is confluent with a batch of prior swing highs from June and July.

The post-Fed breakout took hold aggressively and that’s what finally allowed bulls to barge through that resistance. But, since, there hasn’t been much for support tests there and that’s the next big item if the pullback is to continue in S&P 500 Futures.

S&P 500 Futures Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

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