EBC Markets Briefing | US equities pause amid rotation trend

US shares idled on Wednesday after a lengthy rebound propelled them towards recent record highs. They have been on a roller-coaster ride this month after investors took fright a surprisingly weak NFP report.

Hopes for an economic soft landing are once again powering stocks higher. Some of the biggest winners including chip stocks this year have staged strong rebounds since the meltdown in global markets.

Goldman Sachs earlier this month cut its probability forecast for a US recession to 20% from 25%, noting that several smaller economies had seen sizeable unemployment rate increases in the current cycle without entering a recession.

Analysts at Capital Economics said its end-2024 forecast for the S&P 500 remained at 6,000, driven by a view that the AI narrative which dominated in the first half of the year will reassert itself.

The recent rebound in tech stocks has not convinced options traders yet. The cost of contracts hedging against volatility in the largest ETF tracking the Nasdaq 100 Index remains high relative to those on the SPDR S&P 500 ETF Trust.

Though tech will likely still contribute to the rally, JPMorgan said the rotation in other areas could have more room as the "growth backdrop does look healthy” and the Fed is about to cut interest rates.

The benchmark index may consolidate before a retest of its record high hit in July as reclaiming 50 SMA validates the long-term uptrend.

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