S&P 500 Flatlines Before Nonfarm Payrolls

  • Nonfarm payrolls for November arrive on Friday.
  • PCE data supports the Fed pause theory.
  • Bond yields price a lower terminal Fed rate below 5%.

US equities held up well on Thursday with little profit-taking evident. The strong move on Wednesday after Powell's speech was consolidated as the major indices remained nearly flat for most of the session. The Nasdaq correctly outperformed due to the continued fall in interest rates as markets priced in a peak Fed funds rate of about 4.9%, down from 5% only a few weeks ago. This is perhaps curious given Powell and others have stated they see peak rates being higher than the September forecast, but bond markets are betting on a 2023 recession to keep a lid on rate hikes. This naturally boosts the rate-sensitive Nasdaq. The situation in China is helping some of the big tech names, notably Apple (AAPLand Tesla (TSLA), which overall is helping all indices. Oil prices recovering have pushed oil stocks higher, and the energy sector also stabilized on Thursday after dropping Wednesday.

S&P 500 news

Asian equities fell as profit-taking was evident after some strong rallies this week. All eyes now turn to the nonfarm payrolls release from the US. Expectations are set at 200K jobs, which would add to Fed pause hopes with slowing evident. Anything higher could prove difficult for risk assets to make gains. Overall, a tight balance is evident as too much of a slowdown will add to recession fears after yesterday's weak ISM data. Below 50K would put the reading in the recession zone. 

S&P 500 (SPX) forecast

Technically, the S&P 500 remains bullish above 4,030, which is a double top from November. The break above has now added fuel to the rally, and as long as we remain above this level the risk-reward is skewed higher in my opinion. Friday, however, is the next hurdle with the jobs report. Extended resistance is 4,325, the summer high. This would be a strong resistance and a real test if we are in a longer-term bear market.

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