S&P 500 outlook: Stocks continue to struggle as Q4 gets underway

• S&P 500 outlook: rising yields continue to undermine equities
• Will incoming US data help arrest bond market rout?
• S&P 500 outlook: technical analysis point lower

The bond market sell-off has resumed, further supporting the dollar and undermining equities. In other words, nothing has changed since last week. Sentiment remains cagey with investors showing no desire to hold onto any gains. Investors are clearly not impressed by the latest kicking of the can down the road in so far as US debt deal is concerned. So, the focus has quickly returned to factors that had weighed on markets last month, namely, rising bond yields and a strong dollar. Today’s strong ISM manufacturing PMI data has further fueled the dollar rally, now up for the 12^th week against a basket of foreign currencies.

There will be lots of key US data to look forward to this week, which should keep the dollar an bond yields in focus, which in turn should influence the stock markets. For as long as bond yields are rising, this should keep equities under pressure. Faced with extra risk in a challenging macro environment, yield-seeking investors would rather earn a decent, fixed, return, than hope for uncertain dividend payments or further capital appreciation in stocks, with overstretched valuations.

With this being the first trading of the month and quarter, it is likely that some funds are continuing to offload underperforming equities after a tumultuous September.

Earlier, though, there was some relief in the market after the US Congress agreed on a stopgap spending bill to avoid a government shutdown until November 17^th. This caused US index futures to gap higher overnight. But they then resumed lower, and the brief rally post the cash market open also faded. At the time of writing, the S&P was trading near the day’s lows.

S&P 500 outlook: technical analysis

The lower highs and breakdown of key support levels on the S&P means the path of least resistance is to the downside. With broken key support in the range between 4335 to 4336 turning into resistance, it is likely we may now see follow-up technical selling towards last week’s low at 4237, where trapped traders’ sell stops might be resting. So, watch out below!

Source: TradingView.com

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R