SPX500_m pares gains ahead of US jobs report

The keenly-watched US nonfarm payrolls report is due on Friday, and has the potential to trigger a large reaction across global financial markets.

Here are the current market expectations for the June jobs report out of the world’s largest economy:

• 225,000 new jobs added. If so, that would be its lowest tally since December 2019.
   
• 3.6% unemployment rate, lower than May’s 3.7%.
   
• Average hourly earnings grew by 4.2% compared to June 2022 (year-on-year); slightly lower than May’s year-on-year growth of 4.3%.

 

Note that, so far in 2023, every single month’s headline NFP number has exceeded market expectations, likely to the chagrin of many economists.

Still, as the saying goes, all trends eventually come to an end.

 

US economy expected to eventually buckle under weight of Fed rate hikes

Realizing that the Fed has been aggressively rolling out “demand destroying” rate hikes since last year, markets still do expect an eventual recession – they just don’t know when.

In the interim, the US economy has proven to be more resilient than expected, as evidenced by the string of higher-than-expected US NFP numbers so far in 2023.

However, that’s not necessarily a “positive omen” for the US stock markets.

After all, as long as the economy can withstand Fed rate hikes, that may invite the central bank to raise rates even more, and keep US rates at this peak for longer, until the inflation battle is won.

 

How might the US stock market react to the NFP report?

• Contrary to the commonly-held opinion that a better-faring economy is positive for risk assets, a better-than-expected showing by the US labour market may inversely drag the S&P 500 lower on the notion that more Fed rate hikes are incoming.
  Such resilience could be demonstrated either by way of a better-than-expected NFP headline number, higher-than-expected wage growth, or lower-than-expected unemployment rate.
   
• On the flip side, signs of a US labour market that’s being burdened by Fed rate hikes (i.e. weaker-than-expected hiring/higher unemployment rate etc.) could spell further gains for risk assets, including the SPX500_m, on the notion that the Fed may be closer to bringing the curtains down on its rate-hike campaign.

 

Looking at the SPX500_m price charts …

This blue-chip index for US stocks is paring gains after posting last week its highest intraday price since April 2022.

The SPX500_m also appears to be easing away from “overbought” conditions, with its 14-day relative strength index (RSI) falling away from the 70 textbook-defined mark.

Should this pullback gather pace, bears are set to cast their first glance around the 4400 psychologically-important mark.

The 21-day simple moving average lies just slightly further south to potentially offer added support.

However, if the SPX500_m can break to the upside beyond the June 30^th intraday high of 4463.2, then equity bulls may be enticed to revisit the 21 April 2022 intraday high 4516.3.

Stronger resistance may then arrive at the 78.6% Fibonacci level from the S&P 500’s peak-to-trough action in 2022 (Jan peak – Oct trough) at 4535.9.

Ultimately, a sustained presence above the 4500 psychologically-important level is likely to entice more bulls into driving the SPX500_m higher, especially if the AI-frenzy remains intact.