The benchmark index for US stocks is having a restrained start to the new year so far. Tuesday’s declines of 0.4% were offset by Wednesday’s 0.75% advance at the close.

Yesterday’s gains reached as much as 1.28% if it weren’t for the pullback following the release of the FOMC minutes.

The minutes from that December Fed meeting showed that policymakers remained focused on subduing rising consumer prices, and were also concerned about any "misperception" in financial markets about their commitment to fighting inflation.

In other words, the Fed wants to be seen as still intent on raising US interest rates further, in contrast to markets expectations for a Fed rate cut before the end of 2023.

Fears over a still-hawkish Fed promptly dampened some of the gains in the S&P 500, with today’s price action still muted at the time of writing.

Friday’s NFP could trigger the next big move for S&P 500

Markets will be interpreting tomorrow’s US data release in terms of whether the labor market is strong enough to keep withstanding higher US interest rates.

As things stand, markets are forecasting 200k new jobs in December, an unemployment rate that remained at 3.7%, and an average hourly earnings growth of 0.4% relative to November.

Based on the forecasted figures above, here are two potential outcomes that could move US stocks before the weekend:

1. A further pullback in the S&P 500 is likely if the US labor market continues to remain resilient, in turn allowing the Fed to stick with its hawkish ambitions.
    
2. S&P 500 may find joy in the “bad news” of rising unemployment and slower earnings/hiring momentum, which in turn should prompt the Fed to ease up on its rate hikes before they drag the world’s largest economy into a recession.
    

S&P 500 awaits catalyst for a breakout

Looking at the charts, the S&P 500 has been consolidating around these upper-3000 levels since mid-December, awaiting a fresh catalyst to spark a major move either upwards or downwards.

This consolidation in prices indicates the uncertainty that market participants have as to how much higher the Fed can continue hiking.

That uncertainty could be dispelled this Friday, in light of the incoming NFP print.

From a technical perspective:

• The S&P 500 continues to operate firmly in the downtrend initiated in January 2022 when it reached its record high (intraday prices) at 4819.9, despite the attempted recovery for this index since October.
• Attempts at an upside breakout may face immediate resistance in the form of the 100-day simple moving average (SMA) which now resides at 3886, with the 50-day counterpart residing further north at 3909.
• Ultimately, equity bulls would require a sustained presence above the 200-day SMA, a key technical indicator that has kept the S&P 500 suppressed since April 2022, in order to entice more market participants into pushing this index higher.
• However, if this Friday’s US jobs report comes in better-than-expected, then such “good news” for the US jobs market is likely to be deemed as “bad news” for stocks, potentially prompting the S&P 500 to revisit the 3763.6 December low once more.

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