S&P 500 to end the week near lows near 4,100 after strong NFP report

• Major US indices have rebounded from intraday lows hit after strong US jobs data, but are still down.
• The latest NFP report was seen as easing concerns about weak US growth and strengthening the Fed’s tightening conviction.
• The main focus for the equity markets next week will be the US CPI.

After testing multi-month lows recorded earlier in the week following strong US jobs data, major US stock indices They have seen a decent intraday bounce in recent trading. The S&P 500 hit 4,060 (down 1.8% at the time), but has since rallied to 4,120, where it is now trading down about 0.5%. Despite a further rise in US 10-year bond yields, which recently topped 3.10% for the first time since 2018, the rate-sensitive, big-tech/growth-stock-dense Nasdaq 100 index traded higher. last time around 12,800 and down about 0.4%, having trimmed earlier losses to around 12,500. The Dow last fell around 0.5% in the 32,800 area, having seen similar price action.

The latest US employment report showed that the US labor market remained in good health in April. The economy added more than 400,000 jobs, slightly more than the 391,000 expected, and the unemployment rate was unchanged at 3.6%, roughly in line with pre-pandemic levels. Granted, it was expected to drop to 3.5%, and other job slack metrics like the underemployment rate and participation rate deteriorated slightly, but the data was received as strong.

Analysts said the report would ease fears that the US economy is in recession after last week’s data showed US real GDP unexpectedly contracted in the first quarter, mainly due to to a record trade deficit. Labor market strength is typically associated with an economy that is still growing. This, analysts reasoned, may partly explain the negative reaction to the data seen in US stock markets.

While the Federal Reserve, which raised interest rates by 50 bps earlier in the week and signaled further significant tightening ahead, is primarily focused on tackling inflation right now, signs of economic weakness (such as the report from the last week’s GDP) could deter them from adjusting too quickly/too much. In that sense, Friday’s US jobs report has been interpreted as increasing confidence that Fed policymakers will feel that the US economy can handle a quick tightening and significance of monetary policy.

Perhaps then it is not surprising to see US stocks post further losses and end the week near lows. However, with US consumer price inflation data due out next Tuesday, it appears that traders have lacked conviction, or at least there remains enough buying demand to keep the major US stock markets on hold. US above recent lows. Nonetheless, the S&P 500 still appears to be on track to post a fifth consecutive week in the red.

Technical levels