On Friday, US stocks bounced back from last month’s declines led by the S&P 500 Index, which edged slightly higher by 0.5%. The market is preparing for a busy period next week, with several economic updates expected.
In the latest round of data from the Institute of Supply Management (ISM), US manufacturing unexpectedly increased in September, pushing the index to 61.1 from 59.9 in August and compared to the expectation of 59.6.
If this is a sign of things to come, the next week’s Services index data could also outperform estimates, boosting optimism in the market. As a result, investors will be anxiously looking forward to the US Jobs data and the unemployment rate.
Time to invest in stocks?
Normally, US stocks tend to respond positively to upbeat economic data. However, although manufacturing and services output grew in August, US stocks still plummeted amid lower-than-expected Jobs numbers. Therefore, there could be some twists and turns before the market established a solid bullish sentiment.
Moreover, US stocks last months also suffered from fears of potential Chinese contagion following the Evergrande collapse. But the situation seems to be easing now, with investors seemingly believing the US real estate market is well cushioned from a potential ripple effect.
Therefore, if the US economy posts more positive numbers in the coming week, then the market, led by the S&P 500, could go on a significant rally.
Source – TradingView
Is a rebound inevitable?
Technically, US stocks appear to have substantially plummeted in the previous 30 days, with the S&P 500 falling below the lower band of the regression trend. As a result, the SPX has moved closer to the oversold conditions of the 14-day RSI, creating a perfect opportunity for a rebound.
Therefore, with the regression trend having a strong Pearson’s correlation coefficient of 0.97, a rebound seems inevitable. As a result, investors can target potential rebounds at approximately 4,422 or higher at 4,538.
On the other hand, if the decline unexpectedly continues, resulting in a market crash, the S&P 500 index could find support at 4,205 or lower at 4,070.
Watch out for a sharp recovery
Usually, when US stocks plummet significantly within a short period, a quick recovery follows. And given the mounting positivity in the market ahead of next week’s economic data releases, investors will be upbeat in October.
Moreover, some companies will be announcing their latest quarterly results, led by the financial sector, which could set a positive tone going into the tail-end of the year.
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