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S&P 500 bulls are likely to do fine early next week, no matter the gathering technical and macroeconomic clouds. Take Friday‘s NFPs that I called to come not above 240K. As for the rest of my prediction (not being surprised by low 200K or more probably a figure starting with 1xxK), I‘ll have to wait for the revisions in the months ahead – and they will meaningfully come, because that‘s how typically non-farm payrolls work.
We have seen that this week already with unemployment claims (initial or continuing), and the NFPs employment change, Challenger job cuts and JOLTS job openings paint a more comprehensive picture for me – it‘s only reasonable to expect deteriorating job market data ahead.
Still, the key theme of this week is going to be Wednesday‘s CPI – look for the headline YoY figure to come in at 5.4% (no higher than 5.5% really), but for the core CPI to remain more resilient. The market will in my view again take that as „the Fed will really pivot now“ (really this time), even though the core CPI wouldn‘t support that notion. I continue to think the market is getting it terribly wrong expecting 100bp rate cuts this year – the Fed would continue keeping Fed funds rate at 5.25% (that means one more hike is ahead, and then a pause). First though, the poor earnings would catch up with S&P 500, followed by more real economy deterioration in the face of restrictive Fed and rising oil prices (these are the shadow Fed funds rate).
I‘m discussing outlook for other markets in today‘s rich real assets chart section, and that includes a heads up for important PMs, crude oil and dollar moves.
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Let‘s move right into the charts (all courtesy of www.stockcharts.com).
S&P 500 and Nasdaq Outlook
Monday‘s close below 4,115 isn‘t the leading scenario, and stocks are likely to approach (take on) low 4,160s resistance, which would be broken in the latter half of next week. Monday or Tuesday really isn‘t yet time for 4,078, let alone 4,039.
Credit Markets
Bonds will continue underperforming, and my earlier points about fresh corporate debt issuance slowing to a crawl amid continued junk bonds underperformance, still apply. Add commercial real estate dragging down regional banks (major CRE loans originator), deposits situation, and you know all the ingredients for KRE and financials underperformance. Risk taking is already poor in this narrow rally, also if you look at Russell 2000 and detailed sectoral overview in the introduction to Friday‘s article.