US Stock Market Key Points:
• The S&P 500, Dow and Nasdaq 100 started the day with continued sell-offs but have since found support and put in bounces ahead of the close.
• Robust manufacturing activity and a decline in prices paid highlight a couple pieces of US data ahead of the jobs report.
• All eyes continue to be on NFP data tomorrow, following a better-than-expected employment number today and a massive showing in NFPs last month.
Most Read:S&P 500, Nasdaq 100, Dow Jones Forecast Ahead of Non-Farm Payrolls (NFP)
September is historically a bad month for US equity markets as it can be pinned to a psychological feature and the return of liquidity ahead of fiscal year end portfolio rebalancing by some institutional investors.
Kicking off today’s US session, equities seemed to be driving lower as continuation of this week’s sell-off. The S&P 500 tested an important support level, the 23.6% Fibonacci retracement at around 3,915, and this helped to set support as a rally then appeared in the latter-half of the session.
The fundamental backdrop for equities remains dark as good economic items can have a negative implication, considering the fact that the Fed is actively trying to slow down the economy. Data remains in focus as investors try to gauge just how far and just how high the Fed’s hiking cycle may run.
And today’s data on the Economic Calendar raised some eyebrows. ISM Manufacturing for August and weekly jobless claims were both strong, illustrating a resilient US economy. There is little evidence that as of now the US economy is in recession. Manufacturing activity, which accounts for about 10% of the economy, has remained strong. Consumer demand remains sturdy, and the condition of the labor market continues to be robust. The latest weekly jobless claims data rose by less than expected, reaching the lowest level since June.
So, based on today’s economic numbers, the question is raised as to whether the Fed will go 75 bps for their next hike later this month. The FOMC has created a significant hawkish tone at Jackson Hole and in various Fed-speaker engagements after. Money Markets are now pricing in more than 75% chance of a 75-basis point rate hike in September and markets were also quick to react ahead of upcoming rate decision. US Treasury yields have similarly jumped, with the two-year note at its highest level since 2007 while gold retreated, and king USD kept its status as one of, if not the strongest major currency in the world.
Equities posed a late-session rebound and erased earlier losses in the latter-portion of today’s session. At the close, the Dow gained 0.47% and the S&P 500 jumped 0.30%. The Energy sector led some losses by closing 2.30% lower today. Tighter financial conditions around the globe, slower factory activity in China -exacerbated by Covid related lockdowns, all may contribute to the fear that oil demand will eventually be hit.
On the other hand, the Nasdaq 100 is grappling with anxiety by the impact of higher interest rates. Growth Stocks, which generally thrive on cheap money because they are valued on future profit potential as opposed to current cash flows, were affected by today’s environment.
The Index closed with a loss of 0.26% A drop in the price of shares such as NVIDIA Corp and Advanced Micro Devices highlighted the weakness in the tech index.
S&P 500 (SPX) Daily Chart
Looking ahead, investors are waiting for the NFP number tomorrow. If the data is strong, there’s potential for further pressure in equities as investors asses the ramifications of a more-hawkish FOMC on the horizon.
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—Written by Cecilia Sanchez-Corona, Research Team, DailyFX