Stock market: S&P could break 1,130 this week
If the Federal Reserve’s view of the economy brightens by just a glimmer this week, it could push the stock market above its four-month trading range.
The Standard & Poor’s 500 index closed Friday at the higher end of that range, just below 1,130. Some chartists see a break above it as presaging a test of the year’s highs. But options trading suggests that some see 1,130 as the market’s ceiling and are protecting their portfolios against a decline.
Other investors see the Federal Open Market Committee policy meeting set for Tuesday as the turning point for stocks to break out of the range with conviction.
“Going up to the close on Tuesday, we could see a little bit of enthusiasm, and perhaps it could be the catalyst that could push us above 1,130 on the S&P,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wis.
In late August, Fed Chairman Ben Bernanke said he would need to see a significant deterioration in economic conditions before easing monetary conditions further. Recent data, including a stronger-than-expected reading on private-sector jobs growth, could prevent further action from the Fed.
If the Fed does move, people “wouldn’t interpret it as a bad sign [for the economy] but as the Fed being vigilant in trying to keep this recovery going,” Jacobsen said.
Most analysts do not see the Fed moving in that direction immediately, but Jacobsen said any signal would be welcome.
Even with stocks losing a bit of momentum as some technical indicators suggest, the S&P 500 seems poised to move above 1,130.
Having pierced 1,130 three times in the last three months, the level is garnering attention even from investors who are more focused on fundamentals than on technical analysis.
“Whenever economic uncertainty bubbles up, that’s when technicals take over in terms of what market participants look for,” said Wasif Latif, vice president of equity investments at USAA in San Antonio.
In terms of economic data, this week’s schedule has a near-daily dose of housing indicators. With the housing market index Monday and housing starts Tuesday, followed by existing home sales Thursday and new home sales Friday, investors will get a clearer picture of a key sector that must improve before the economic recovery can really kick in.
“It’s been so terrible lately that it doesn’t have to be strength,” Jacobsen said. “Just a sign of life in the housing market could be support for financial markets overall.”
