US Stock Correction May Be Nearing End, But PCE Holds the Key
The article suggests that the US stock market and high-beta assets may be approaching the end of the current correction phase, with the PCE inflation data set to determine whether bulls can sustain the upward trend. When long-term US Treasury yields decline, assets like stocks, gold, and crypto typically benefit simultaneously; if the Fed holds rates steady, risk appetite could recover further.
However, the July headline PCE rose 3.7% year-on-year, exceeding market expectations of 3.6%, while the core PCE remained at 3.3%. With inflation proving sticky, markets are concerned the Fed may need to maintain higher rates for longer, or even that the probability of renewed rate hikes could increase. The S&P 500's consolidation near the 7676 level indicates investors haven't made a large-scale retreat based on a single data point, but room for valuation expansion is being constrained.
Yield Direction to Determine If Valuations Can Rise Further
If US Treasury yields resume their downward move, growth stocks and semiconductors could continue to lead an index rebound; if yields rise due to hotter inflation, high-valuation sectors will face greater pressure. Nvidia's post-earnings rally provided support for the tech sector, but for the index to sustain strength, broader market participation is still needed.
The article also notes divergent performance among high-beta sectors like space stocks, indicating a lack of broad-based recovery in market risk appetite. While SpaceX-related names are holding support, Rocket Lab, AST SpaceMobile, and Intuitive Machines need to reclaim key levels to confirm an improving trend.
7750 and 7580 Mark Upper and Lower Boundaries
The trading framework in the chart identifies the 7690-7710 zone as an area for observing potential entries, with 7750 acting as a stop-loss for shorts or a level for invalidating the upside, and 7580 as a downside target. In other words, the index faces valuation digestion pressure in a high-inflation environment, and the risk of a pullback remains if it fails to hold firmly above 7700.
Bulls need to see yields decline, tech earnings deliver, and the index break above prior highs anew. Bears, meanwhile, are focused on persistently hot PCE data and valuation compression. The current phase resembles more of a directional decision point rather than a confirmed one-way trend. For SPY, the ability to reclaim the area around 7700 will determine near-term strength, while the vicinity of 7580 serves as a crucial defensive zone to the downside.
