Why Markets Need More Positive Data to Rally

Dennis DeBusschere, chief market strategist at 22V Research in New York, emphasized that following the mini-crash earlier this month, “more consistent optimism” is crucial for driving a markets surge. Recent economic data suggests that recession fears, initially sparked by the last jobs report, were overstated.

DeBusschere pointed to U.S. jobless claims data, ISM Services data, and the New York Fed’s August business leaders survey as evidence of economic strength. “The short-term recession scare appears to be over,” he noted.

On Monday, the S&P 500 closed just 1% below its July record, but DeBusschere warned that the upcoming payroll report on September 6 is “the next big hurdle” for markets. The significance of this report may even eclipse Fed Chair Jerome Powell’s speech at the Jackson Hole Economic Symposium on Friday.

After muted reactions to recent data, more positive news is needed to fuel another rally, particularly following the unwinding of the Japanese yen carry trade earlier this month.

“Expectations for small-cap fundamentals remain weak for the second half of 2024,” DeBusschere said, “but there is room for improvement once economic conditions strengthen.” The Russell 2000 index, which focuses on small-cap stocks, remains 6% below its July highs.

In the technology sector, valuations still appear driven by long-term narratives, leaving room for further gains despite the cooling of the recent AI craze, according to DeBusschere.