Market Analysis: European and US stocks attempt to keep the bullish momentum going

After a volatile start to the month, global stocks have ended August on a high, with indices reaching all-time highs on either side of the Atlantic. Growing optimism of a soft landing in the US, with an expected rate cut from the Federal Reserve in September, has helped sentiment improve after the correction seen at the start of the month.

Both the EU STOXX 600 and DAX 40 reached new highs on Friday aided by falling inflation in the Eurozone. Markets remain positive towards the European Central Bank (ECB) and its policy decisions, which has seen some rotation out of the US and into Europe. Market pricing currently shows a 99% chance of another 25bps cut from the ECB at their next meeting on September 12. For now, sellers are testing the appetite for a pullback in Europe, with both indices tilting lower on Monday. The DAX 40 remains strongly geared to the upside and will likely continue to drift with sentiment this week, as markets place their focus on the US jobs data out on Friday as a softer-than-expected reading triggered the selloff last month. 

DAX 40 daily chart

_{Past performance is not a reliable indicator of future results.}

Meanwhile, in the US we’ve seen a seasonal rotation from high-value stocks into small caps, allowing the S&P 500 to push to new highs whilst the US 100 remains below its July highs. In fact, NVIDIA’s performance after its earnings release shows how high the bar is set when it comes to performance expectations, suggesting the tech rally that has driven most of the bullish sentiment over the last 12 months has begun to unwind. That’s not saying that the US 100 will be a hard sell from here on out, but investors may start to think twice before piling into the big names. 

With focus on the jobs data on Friday, traders could be looking for confirmation of a rate cut in the numbers because, despite Jerome Powell having seemingly given the all-clear at the Jackson Hole Symposium, there is still some concern that further resilience in the data could derail the central bank from its cutting path. It seems unlikely that the data should show an unexpected tightening in the US labour market given last month’s underperformance, but investors will likely breathe a sigh of relief if the data continues to support a dovish Fed, and we could see that reflected in equity markets.

Technically, the S&P 500 has seen some resistance in the past few days just below the highs in July at $5,670. The past week has seen some sideways consolidation as buyers gather the support to break higher, so some further upside should be accomplished this week in order to support the sustainability of the uptrend. 

S&P 500 daily chart

_{Past performance is not a reliable indicator of future results.}