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Will the S&P 500 Index Recover from Last Week’s Fall?

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S&P 500 Index loses ground as US political risks take center stage

The S&P 500 Index (SPY) closed last week at 2425.55, losing 0.65% as compared to its August 11 close. Just as geopolitical risks relating to North Korea were receding, political uncertainty ballooned in the US with President Trump disbanding business councils as key members resigned. Investors became risk-averse as hopes for tax cuts and infrastructure spending from the Trump administration receded further. The FOMC’s release of its July minutes did little to the equity markets in the previous week, as the minutes didn’t offer new insight into the Fed’s next moves.

The S&P 500 Utilities (VPU) and the materials sector (XLB) managed to close the previous week in the green, while the Energy (XLE), telecom (XTL) services, and consumer discretionary (XLY) sectors fell the most last week.

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Speculators decrease bullish bets for the first time in eight weeks

For the week ending August 18, the total outstanding net bullish contracts of large speculators on the S&P 500 index increased to 28,128 as compared to 15,262 contracts in the previous week. The Commodity Futures Trading Commission (or CFTC) reported this data in its weekly Commitment of Traders report (or COT). These figures were collected on Tuesday, August 15, and the long positioning would have reduced in response to rising risk aversion in the last two trading sessions of the week.

Will the S&P 500 Index continue to slide lower?

Economic releases from the US include the Markit Purchasing Managers’ Index for the manufacturing and service sectors. Rising trends in these metrics are expected to continue, and the data should point toward economic expansion in the US. If the risk aversion theme continues this week, we can expect further losses in the index.

The major event for this week is the Jackson Hole Symposium, where Fed members, financial market experts, and academicians are scheduled to speak. Investors will monitor their views on the US and global economy, interest rates, and inflation.

In the next part of this series, we’ll look at how the US Dollar (USDU) reacted to the developments of the previous week and what to expect for the week ahead.

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