Fundamental Overview

The S&P 500's strong rally stalled last Wednesday after a US-Iran deal failed to materialize within the expected timeframe. The anticipated agreement had been viewed as a potential reduction in geopolitical risk, contributing to the upward momentum that pushed equities toward record highs. Since the delay, price action has been mostly rangebound, with only a softer-than-expected Non-Farm Payrolls (NFP) report providing some support.

The NFP data triggered a dovish repricing of interest rate expectations, with the probability of a September rate hike falling to 38%, down from 54% before the release. Market pricing has since normalized, with the probability of a September hike climbing back to 48%.

This whipsaw in expectations stems from a significant loss of government jobs in the report, which made the overall data appear softer than it actually was. The unemployment rate told a different story, falling further to 4.1%. Overall, the labor market remains on a better trajectory than it has been over the past three years. The Fed's dual mandate requires balancing employment strength against inflation progress, making each data point a potential policy lever.

The next major catalyst is the US CPI report, due tomorrow. As the primary gauge of consumer inflation, CPI directly informs the Fed's price stability objective. The data will be critical for the September FOMC decision and Fed Chair Warsh's speech at the Jackson Hole symposium, an annual gathering of central bankers and economists in Wyoming that has historically served as a platform for signaling monetary policy direction.

A hotter-than-expected report would likely trigger a short-term selloff as traders increase their rate hike bets. Conversely, a softer report should further reduce the risk of Fed tightening and give the S&P 500 another boost.

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S&P 500 Technical Analysis – Daily Timeframe

On the daily chart, the S&P 500 stalled around the upper bound of its rising channel as traders await the CPI report. Sellers will likely continue to step in around these levels, with defined risk above the record high, positioning for a drop toward the lower bound of the channel. Buyers, meanwhile, will want to see a breakout above the record high to extend gains toward the 8,000 level.

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S&P 500 Technical Analysis – 4-Hour Timeframe

The 4-hour chart more clearly illustrates the consolidation that began last Wednesday when the US-Iran deal fell through. The soft NFP report provided some support through dovish repricing, but the CPI data will ultimately determine whether the Fed hikes rates in September.

The swing low around the 7,725 level will likely act as minor support. If the price reaches that zone, buyers can be expected to step in with defined risk below the swing low, aiming to push toward new highs. Sellers, on the other hand, will look for a breakdown to extend the drop toward the 7,640 support level next.

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S&P 500 Technical Analysis – 1-Hour Timeframe

On the 1-hour chart, price action will likely remain mostly rangebound heading into the CPI release. Some hedging into the data could result in minor weakness. At this stage, the market is largely waiting for the report. The red lines on the chart define the average daily range for today.

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Upcoming Catalysts

• Tomorrow: US CPI report
• Thursday: US PPI data and the latest US Jobless Claims figures
• Friday: US Retail Sales and the University of Michigan Consumer Sentiment report