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For the sixth consecutive week, US stock markets closed higher, resilient to a robust Friday night employment report. This report shifted expectations for Fed rate cuts in 2024.
Non-farm payrolls increased by 199k in November vs 183k expected, and the unemployment rate fell to 3.7% vs 3.9%. Average hourly earnings rose by 0.4% MoM vs 0.3% expected, and the participation rate ticked higher to 62.8%.
The run of data that preceded Friday’s NFP data has mostly been softer, and equity markets appeared willing to overlook NFP as an outlier. However, equity markets are unlikely to be so forgiving if they get another fright this week from either CPI, the FOMC meeting, or retail sales.
What is expected from the FOMC meeting?
At Thursday morning’s FOMC meeting, the Fed is widely expected to keep the Federal Funds target rate unchanged at 5.25%-5.50%.
As such, most of the interest will be in the tone of the Fed’s statement, and whether it includes a tightening bias like last month’s: “In determining the extent of additional policy firming that may be appropriate to return inflation to two percent over time.”
As well as the summary of economic projections (SEP or Dots). While it is difficult to assess consensus expectations around the “dots”, if the “dots” show two to three rate cuts in 2024 with the median forecast at 5.10% or less, it will confirm markets remain on the right track looking for rate cuts next year.
S&P 500 technical analysis
NB. This week, we transitioned to the cash charts of the S&P 500 and Nasdaq. The rollover from December to March makes a messy futures chart over the next few days.
On Friday night, the rally from the October low saw the S&P 500 cash make a fresh cycle high at 4609. Although we remain bullish, we would not contemplate opening fresh longs at these elevated levels.
Instead, we would prefer to wait for a corrective pullback, and signs of basing as an opportunity to reset longs looking for a test of the March 2022 4637 high, followed by the January 2022 4818 high.
Aware that a sustained break below the support of the 200-day moving average at 4300 would warn that the rally has run its course and that a deeper pullback is underway.
S&P 500 daily chart
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