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The S&P 500 rose 1.6% on Friday.
Jerome Powell testifies to US Congress Tuesday, Wednesday.
Nonfarm Payrolls forecast for 200K on Friday.
Friday’s 1.6% pop in the S&P 500 index demonstrated just how much the market is begging for good news. That news on Friday was that the 10-year US Treasury saw its yield fall below 4%. That was enough to delight the equity market, which took off enough to lift all boats. This followed Thursday’s advance, which saw SPX price action bounce directly off a one-year trendline. That last detail is giving bulls more certainty that the S&P 500 is gearing up for further upside.
This week is beginning in much the same way as last week shaped up. That is, risk seeing more focus once again. As happened last week with the NASDAQ 100 outperforming the blue chips, NASDAQ 100 futures are again advancing further than either its more staid Dow Jones or S&P 500 counterparts. NDX is ahead nearly 0.5% in Monday’s premarket, while S&P 500 futures are up just 0.1% and Dow futures remain flat.
Federal Reserve Chair Jerome Powell will address the US Congress on Tuesday and Wednesday this week. All traders pretty much see this as the primary event of the week. The market expects more hawkish rhetoric from the central banker after recent Personal Consumption Expenditures (PCE) data, a measure of inflation heavily respected by the Fed, came in higher than expected. Additionally, both former Treasury Secretary Larry Summers and Fed Governor Waller offer up calls for higher interest rates last week.
On Tuesday, Powell addresses the Senate Banking Committee. On Wednesday, his seminannual address will be heard by the House Financial Services Committee. Listeners will want to see if Powell retains faith in the Fed’s current rate path and whether he again says the economy is on a disinflationary path. Recent data points to falling inflation in the good sector but stickier inflation in the services sector brought on by a tight labor market and stubborn wage inflation.
If Powell keeps his confidence that inflation is hemmed in, then the S&P 500 could spike as traders grow renewed hope in a soft landing. A worried Powell or statements about the need to increase rates higher for longer would send the entire market reeling.
Friday sees the Nonfarm Payrolls (NFP) released from the Bureau of Labor Statistics. Consensus calls for 200,000 new jobs in February, but the market should be worried since the figure for January came in off the charts. That figure was 517,000, more than 300,000 higher than consensus. Though it could have been caused by a seasonal effect, recent unemployment data shows that workers are not being layed off en masse.
Another figure well above 200K will surely lead traders to bail on the S&P 500. This is because further evidence of tight labor supply would create the impression that a wage-price spiral may be a reality. This is a major worry of the Fed and is likely to cause the market to expect a much higher interest rate hike next time around.
On Monday, Trip.com (TCOM) and Lordstown Motors (RIDE) report quarterly earnings. On Tuesday, the market hears from Dick’s Sporting Goods (DKS) and CrowdStrike (CRWD). Wednesday sees MongoDB (MDB) reporting, and the following session has JD.com (JD), DocuSign (DOCU) and Oracle (ORCL) report Thursday.
Former US Treasury Secretary Larry Summers, a bigwig in Democratic Party economics circles for 30 years, is pushing for a higher interest rate hike to combat inflation:
“The Fed right now should have the door wide open to a 50 basis-point move in March. A reasonable assessment of where the Fed is would say that they have not been this far behind the curve for a year or so.”
The S&P 500 was hemmed in by a top descending trendline for a full year. That ended this year on January 26, when SPX broke through that resistance line. On February 2, SPX reached a new resistance point from an ascending top trendline that connects with December of last year and was forced to backtrack. Last Friday, however, SPX bounced off that old descending trendline, which is typically a signal that a rally is back on. The S&P 500 is essentially telling traders that this old resistance level is now to be treated as support.
SPX daily chart
The close-up of the same daily chart below shows that SPX broke above the 9-day moving average on Friday. On Monday, bulls will try to break above the 21-day moving average, which currently sits at 4,065. The next barrier is the black, short-term descending trendline, which will endeavor to stop out bulls at 4,100. A break there would allow them to make a run at the 4,160 to 4,200 supply zone that has worked as resistance for months as it did in early February. On the longer timeline, observers will note that the 4,300 level is where the current ascending trendline is headed.
SPX daily chart
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