Can Markets Climb Without More Good News?

Dennis DeBusschere, chief market strategist at 22V Research in New York, believes that the recent mini-crash has left markets needing “more consistent optimism” to regain momentum. He noted that although recent economic data has eased recession fears triggered by the last jobs report, it hasn’t been enough to spark a rally.

DeBusschere highlighted the latest U.S. jobless claims, ISM Services data, and the New York Fed’s August business leaders survey as signs of a strong economy. “The short-term recession scare appears to be over,” he said.

Despite the S&P 500 closing just 1% below its July peak on Monday, DeBusschere identified the upcoming payrolls report on September 6 as the “next big hurdle” for the markets. He suggested that this report could have more impact than Fed Chair Jerome Powell’s upcoming speech at the Jackson Hole Economic Symposium.

Given the subdued market response to recent data, DeBusschere believes that even more positive news will be necessary to trigger another rally, especially after the recent unwinding of the Japanese yen carry trade.

He also pointed out that expectations for small-cap fundamentals remain weak through the second half of 2024, though there’s potential for improvement if economic conditions strengthen. The Russell 2000 index is currently 6% below its July highs.

In the tech sector, valuations continue to be driven by long-term narratives, which, according to DeBusschere, suggests there’s still room for gains even as the AI frenzy cools down.