🔴 CLAWS OUT: Bears Take a Swipe at Overconfident Bulls | SPX SPY | Analysis, Key Levels & Targets

On July 27, 2023, U.S. stocks closed in negative territory after giving up their early gains. The Dow Jones Industrial Average (DJI) snapped its longest winning streak since 1987 as investors booked profits from a recent rally. The S&P 500 index (SPX) experienced an outside day on the charts, signaling potential bearish reversal, but it remains to be seen if this is a buying climax. Real estate was the weakest sector in the S&P 500, while communication services was the sole gainer, driven by strong advertising revenue from Meta Platforms (META).

Chip stocks showed strength, with the Philadelphia SE semiconductor index (SOX) rising nearly 2% after an upbeat sales forecast from chip-equipment maker Lam Research (LRCX). However, regional banks and gold stocks suffered losses. The surge in Treasury yields, with the U.S. 10-year Treasury yield jumping to ~4.01%, may have contributed to the reversal in stocks.

U.S. bank regulators released their Basel III proposal, which would require the nation's largest banks to raise capital. While the S&P 500 banks initially rose more than 1%, they later pared gains, indicating uncertainty over the proposal's implementation and potential impacts on the banking sector.

Federal Reserve Chair Jerome Powell's comments on rate cuts for 2024 have caused some confusion in the futures market. Powell suggested that rate cuts were a year away, but futures traders still appear to believe otherwise. Some analysts argue that the Fed will only cut rates if they are certain about inflation heading toward 2%, which may not be the case given the current strength of the U.S. economy.

Morgan Stanley pointed out that U.S. Treasury traders may be overly focused on economic growth instead of falling inflation when interpreting future Federal Reserve moves. Fed Chair Powell emphasized that inflation is their key focus and he expects low inflation without a downturn, hinting at a "soft landing."

The robust economic data, including better-than-expected second-quarter GDP growth and a decline in weekly unemployment claims, supported Wall Street. However, concerns remain about breaking through record highs for the Dow Jones Industrial Average and possible bearish divergences in the market. Additionally, hopes for the last rate hike in 2023 were tempered by Powell's statement that the next decision will depend on upcoming economic data.

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