Can Equal-Weight S&P Survive the Inflation Test?

Things are looking dicey for RSP with PPI and CPI holding the market’s tongue.

RSP has fallen roughly 3.95% from its highs, while the S&P 500 is being held up by concentrated leadership in megacap names such as Meta Platforms and Nvidia.

Technically, both SPX and RSP are still doing “okay”, in the sense that the uptrend isn’t broken… but it is surviving by a hair.

But that’s exactly why the upcoming PPI data today, and the CPI inflation data tomorrow is so important for equities.

If data comes in too hot, it could break the markets’ technical uptrend before the official Fed Rate Decision on September 16th.

Equal-Weight S&P (RSP) is Testing a Deviation Level

The RSP is the S&P 500 index, but without the “Biased” weighting towards already well-performing stocks. It gauges the S&P 500 companies as a whole, with each asset having the same influence.

With this recent decline, the RSP has lost the middle of its rising price channel and is now testing the lower side of its 50-day EMA band, which lines up closely with rising-channel support. If that area goes, the February highs around 205 become the next major shelf to watch.

Keynote: The RSP is testing a support level in the 50-EMA Bollingers Band® with 1 standard deviation. If PPI data is too hot, it could cause RSP to close below this area. If not, it is expected to hold as support for at least one bounce.

SPX Still Has a Cushion at the 50-Daily EMA

The S&P 500 looks less damaged. It is still behaving more like a pullback inside a broader uptrend, with the 50-day EMA acting as the obvious technical test.

That difference shows us that stronger megacap stocks are having more resilience than midcaps. Mag7 stocks alone can hold the headline index together even while market breadth is getting worse underneath.

For now, the S&P 500 has technically broken out of a symmetrical triangle with a bullish target of ~$8,000. And is currently consolidating in a bull flag before the PPI and CPI release.

Nvidia and Meta Platforms are useful examples of why SPX can survive longer than RSP. Both remain major index supports, but neither chart is risk-free.

Nvidia sits inside of a rising wedge (bearish reversal pattern). A clean break would put the roughly 190 area in focus first, with a deeper technical low near 171.

Meta Platforms, meanwhile, is rebounding towards a visible 671-691 resistance zone inside its broader channel.

US Bond Yields are Putting Bearish Pressure on S&P

The market is operating in an inflation-sensitive, higher-yield regime.

Restrained oil deliveries and expensive refined fuels (such as Gasoline and Diesel) are keeping inflation fears alive, while the Treasury curve is already showing the cost of that pressure.

The 10-year is near 4.85%, while the 30-year is pressing levels not seen since before the global financial crisis.

That should already be a major red flag to investors: the markets are fragile; although still in an uptrend.

Even with Scott Bessent’s announcement of tripled Treasury buybacks, the long yields have not stopped rising. 

Perhaps market participants are not buying Bessent’s statements; aka selling into the announcement and calling his bluff.

But whether or not this yield trend changes would be dependent on how hot PPI and CPI data both read in in the next coming days.

Why ISM Makes Today’s PPI More Important

PPI measures the change in prices received by domestic producers for their output. It covers goods, services and construction. It is not simply an oil report.

The more useful warning comes from ISM. August Services PMI rose to 55.4, with business activity at 61.7 and new orders at 60.9. That says activity is still holding up.

The bigger issue is prices. The ISM Services Prices Index jumped to 72.6, its highest reading since August 2022, while the Manufacturing Prices Index held at 71.1.

ISM even notes that, over time, a manufacturing prices reading above 52.8 is generally consistent with rising BLS intermediate-material prices. It is not a direct forecast for final-demand PPI, but it tells us firms are still reporting serious input-cost pressure.

Keynote: Activity is not collapsing, but purchasing managers are still reporting high prices. That gives the Fed less comfort if PPI and CPI also come in hot.

So, are the Feds more likely to cut, hold, or hike rates?

With inflation still above target, oil and refined-product pressure elevated, Treasury yields near the top of their recent range and the economy still holding up, the Fed does not have an obvious reason to ease next week.

That makes holding and hiking the main outlooks to expect.

Though the Fedwatch Tool itself suggests a 62% expectation for a 25bps rate hike, around 70% of economists polled by Reuters expect a hold.

Why the Fed could hold Policy is already restrictive. If PPI is mainly energy-led and CPI stays contained, the Fed can argue that it needs more evidence before tightening again.  Why the Fed could hike If PPI is broad and CPI confirms the pressure, the Fed is looking at above-target inflation, a resilient economy and no urgent reason to support growth.

If PPI and CPI come in contained, the hold case becomes stronger. If both come in hot and broad, the hike case becomes much stronger.

However… if inflation comes in hot but the Fed still holds:

That would suggest officials either see the shock as too energy-led or too recent to act on immediately, or they want one more month of evidence.

Markets could initially celebrate the pause, but persistent inflation would then raise the risk that investors see the Fed as falling behind the curve.

Bottom Line: Markets are Hanging On. By a Thread

Right now, the market has not broken. RSP is still holding its broader uptrend, while SPX continues to benefit from stronger megacap leadership.

But the margin for error is getting smaller.

Hot PPI and CPI would give the bond market another reason to push yields higher, which could be enough to break RSP support and eventually drag the wider S&P 500 with it.

Proceed cautiously with long positions, but also don’t chase a top just yet.