OVERVIEW
Morning Update

• Tuesday: SPY slipped 0.18% to 764.20, while QQQ gained 0.19% to 737.93. Nasdaq held up better, although neither index recovered much of Monday’s decline.

• Participation: Declining stocks outnumbered advancers by 1.66 to 1 on the NYSE and 1.47 to 1 on Nasdaq. Nasdaq recorded 244 new 52 week lows against 34 new highs.

• Premarket: At 7:20 a.m. ET, Dow futures were 0.20% lower, S&P 500 futures 0.15% lower and Nasdaq 100 futures 0.32% lower.

• Rates: The 10 year Treasury yield was around 5.24% this morning, below Tuesday’s intraday peak but still high enough to keep pressure on equity valuations.

• Inflation: August PCE and the third estimate of second-quarter GDP arrive at 8:30 a.m. ET. Economists tracked by FactSet expect core PCE to rise 0.3% month on month.

• Micron: Results are due after the close, with the earnings call at 4:30 p.m. ET. The outlook for memory demand and pricing will be an important consideration for semiconductor positions heading into October.

MARKET ANALYSIS
The Fed Debate Has Become Less Settled

Tuesday’s economic releases added some caution to the stronger growth picture that had been pushing yields higher. The Conference Board’s Consumer Confidence Index fell to 81.9 from 88.6, with households becoming less positive about both current conditions and the months ahead. That does not tell us spending has already fallen, but it suggests consumers are feeling the pressure from prices and employment uncertainty.

Job openings also declined, to approximately 7.1 million in August. Layoffs remained little changed, however, so the labour report provided evidence of softer demand for workers without showing a sudden wave of dismissals.

John Williams reinforced the case for allowing more time to assess incoming data before another rate increase. Markets subsequently reduced the implied probability of an October hike to about 51.5%, from nearly 70% earlier in Tuesday’s session. Treasury yields eased from their highs and stocks recovered part of their losses, although neither move was large enough to remove the pressure that has built through September.

We would not interpret that repricing as a settled change in policy expectations. Today’s inflation figures could alter the balance again, particularly if they show that underlying price pressure remains firm despite the softer confidence and hiring indicators.

SPY Is Close to Its 50 Day

SPY’s close at 764.20 leaves it only about 0.2% above its calculated 50 day average at 762.45. Tuesday’s low of 762.35 was almost exactly at that average, giving us a direct test of trend rather than a support level several percent beneath the market.

We would watch the 762 to 763 area first after the data. A recovery through 767, followed by the recent highs around 769 to 770, would help SPY rebuild the ground lost since Friday. Continued trading beneath the moving average would be more concerning because mid caps and small caps are already substantially below theirs.

For now, SPY remains close enough to trend that a constructive session could improve the picture without requiring an extensive recovery. We would nevertheless want the support response to persist beyond the first reaction to PCE before increasing exposure.

Nasdaq Has Retained More of Its Recovery

QQQ’s small gain on Tuesday came with a higher session low than Monday’s. It traded down to 735.34 before closing at 737.93, keeping the recent 734 to 735 breakout area in play. The first improvement would be a recovery through 740 to 741, where the past two sessions have encountered selling.

The wider chart remains healthier than SPY’s. QQQ is approximately 3.3% above its calculated 50 day average near 714.32, so there is considerably more room between current price and that trend reference. We would still use the nearby breakout area to manage new entries rather than allow a position to deteriorate all the way toward the moving average. Monday’s low near 731.60 provides the next reference if selling resumes.

Equal-weight Nasdaq participated in Tuesday’s modest improvement. QQQE gained 0.29%, slightly ahead of QQQ, while RSP declined 0.11%, slightly less than SPY. Those comparisons do not establish a broad market recovery, but they do show that Tuesday’s Nasdaq resilience extended beyond the largest weights.

Smaller Companies Are Still Making Lower Lows

MDY closed at 660.23 after reaching a new recent low at 656.39. Buyers recovered part of the decline, but the fund remains roughly 4.1% below its 50 day average near 688.35. We would first want a recovery through the 663 to 667 area, followed by stronger closes that do not keep returning to the lows.

IWM is in a weaker position. It finished at 279.01 after trading down to 277.41, extending the sequence of lower lows seen over recent sessions. Its 50 day average is approximately 293.46, leaving small caps almost 5% below trend. Recovering 281 to 282 would improve the immediate chart, but would still represent only an early step toward repair.

We are not treating either fund as attractive simply because the distance from its moving average has increased. A rebound would be welcome, but we would prefer to see the selling stop producing new lows before committing more capital to these weaker areas.

PCE Arrives With Revisions to the Economic History

FactSet’s consensus calls for headline PCE inflation to rise 0.4% in August, with the core measure increasing 0.3%. Economists expect the third estimate of second-quarter GDP to remain at 1.5% annualised growth.

The release also includes the BEA’s annual updates to the national accounts. That means earlier growth, income and inflation figures may change alongside the new monthly numbers. We will compare August with the revised history published today rather than assume that every difference from the previous release represents a fresh change in economic conditions.

For equities, the most useful combination would be moderation in underlying inflation without a sharp deterioration in real spending. A firmer inflation reading would make it harder for bonds to extend Tuesday’s recovery. A softer number would help, although we would still want to see whether lower yields translate into sustained buying beyond the large technology companies.

The Oil Contract Change Matters Today

Brent’s November contract expires today, creating a large difference between the price of the expiring contract and the more actively traded December delivery. At 5:44 a.m. ET, November Brent was $103.16, while December was $97.10. Both contracts were higher on the day.

That distinction is important when comparing today’s oil quote with yesterday’s. A price screen switching from November to December can show Brent below $100 without a corresponding collapse in the price of the same contract. We would not interpret that change alone as new relief for inflation.

Middle Eastern crude flows have improved, but negotiations remain unsettled and refined-fuel markets are still tight. The supply recovery is helpful, although the broader energy backdrop remains more difficult than the lower December price might suggest at first glance.

Micron’s Outlook Matters After the Close

Micron’s results provide the next company-level test for the semiconductor trade. Management previously guided fiscal fourth-quarter revenue to $49 billion to $51 billion, giving investors a clear starting point for assessing tonight’s figures. That is company guidance, rather than the latest analyst consensus.

We will be looking beyond the reported quarter to memory pricing, high-bandwidth memory demand, margins and the investment required to expand capacity. The relationship between those measures matters: stronger revenue accompanied by rising costs or a much heavier spending requirement would warrant a different interpretation from growth that also improves profitability and cash generation.

The stock’s response will matter for our positioning, but we would assess it alongside the wider semiconductor group. A strong report that attracts sustained buying across related names would provide more useful confirmation than a brief after-hours move in Micron alone.