Markets in Motion: Important Jobs Data (SP500)

We continue with our moving markets series. Last week, we discussed the importance of Nvidia’s earnings report, GDP and PCE data. While we saw light volatility last week, many of the key data were positive, allowing the S&P 500 (SP500) “SPX” and other markets to stay afloat. This week, we have the critical jobs data. Last month, a worse-than-expected jobs number caused fears of a substantial slowdown to worsen, prompting one of the most significant spikes in volatility.

Therefore, the market awaits this week’s non-farm payrolls report with skepticism and anxiety. However, the technical picture has improved, the fundamental backdrop remains solid and sentiment has strengthened recently. Moreover, the Fed continues to move closer to adopting a more accommodative monetary policy, there could be substantial upside potential in the AI ​​rally, and there are other favorable variables to consider. Due to the constructive configuration, I keep my year-end SPX target at 6,200.

SPX techniques continue to improve

The technical picture improved drastically as we saw one of the sharpest V-shaped recoveries on record in the SPX. SPX is also going through a long-term head and shoulders reversal pattern and could move above the neckline in the range around 5,600-5,700. Moreover, although the RSI is around 60, the SPX is not significantly overbought and could soon experience a meltdown of new ATHs. On the downside, significant support is around the 5,500 level and we definitely want the SPX to stay above the critical 5,400-5,300 support range.

Some gains to consider

While the heart of earnings season has passed, we have some interesting reports this week. One of the most important earnings reports I can remember came last week (Nvidia). Despite the weak market reaction, Nvidia’s (NVDA) earnings report was solid and the company provided excellent guidance. Therefore, Nvidia’s earnings have been successful in keeping the AI ​​bull market alive. This week, we have more important AI-related earnings reports from Broadcom ( AVGO ), Zscaler ( ZS ), Oracle ( ORCL ), and others.

Critical dates Next week

Last week, we saw better-than-expected GDP and slightly lower-than-anticipated PCE inflation data. Overall, it was a healthy week in terms of data flow, but we need the flow of positive news to continue. This week, we have the all-important non-farm payrolls number. Last month, worse-than-expected jobs data caused panic to grip the markets. On Friday preferably we can see 150-200K which may be the Goldilocks zone. Below the 150-120 mark, the market could turn angry again.

It is also uncertain how the probabilities of a rate cut would be affected if the number of jobs were substantially higher. We also want to keep the unemployment rate from creeping up on us. Therefore, an unemployment rate of 4.2-4.3% may be optimal, and the market may be disappointed if unemployment rises to 4.4% or more.

Fed – 25 or 50 Bps?

There is about a 30% chance that the Fed will cut by 50 bps instead of just 25 bps this month. However, we still have Friday’s crucial jobs numbers, which could alter the Fed’s interest rate cut exceptions. A non-farm payrolls report below 150K could increase the likelihood of a rate cut by 50 Bps. A higher-than-estimated number could also make a 50 bps rate cut less likely. The positive factor is that the market is set on a rate cut in September and the Fed looks ready to cut.

So seeing the Fed and the market on the same page is constructive. The most important element is that the Fed is starting to taper, which could be the start of a long easing cycle. Thus, we may see substantially lower rates, potentially going to zero, as well as QE and other easing measures before the next easing cycle ends. This future economic environment should benefit from high-quality stocks and other risk assets. Valuations could rise as increased liquidity looks for a home.

Why ratings are likely to rise

While ratings may rise, they probably won’t do so blindly. On the other hand, valuations could go up for good reason. The “good reason” may be the lack of alternative asset classes as increased liquidity finds its place. Why would market participants invest in low-yielding bonds and treasuries in a high-inflation environment when they could invest in high-growth companies during the AI ​​boom?

Also, higher earnings and continued efficiency gains could lead to better-than-anticipated profitability for many companies. Therefore, we should see substantial earnings increases below higher valuations, allowing the market to hold together as it appreciates in the coming years.

Provided a more accessible monetary atmosphere, likely growth improvements, considerable AI potential and other constructive variables, we could see a solid 2H and 2025 ahead. Therefore, I maintain my year-end SPX target at 6,200. SPX could move to new ATHs in 2025 – 6,500-7,000 (target range).