Stocks Slipping

The downturn in stock markets ahead of today’s US NFP might be seen as profit taking ahead of a volatile event. However, the selling is perhaps a more worrying sign, given the downside volatility we saw last month. Typically, ahead of expected easing from the Fed, weaker labour market signals tend to boost stock prices through elevated easing expectations. However, given the recessionary risks still lingering from the prior reading, today’s price action might be more concerning, showing that traders are focusing more on the broader implications of a potential downturn rather than the near-term boost from Fed easing.

Fed Easing Forecasts

The Fed is now widely expected to begin easing this month with at least .75% worth of easing price in ahead of year end. The question for traders now is whether the Fed will cut by .25% or a deeper .5% this month. Today’s jobs data is seen as key to determining that. With the JOLTS and ADP numbers this week both coming in below forecasts, traders are wary of a similar downside materialising in today’s figures. If seen today, a downside surprise would likely confirm a more aggressive cut from the Fed. However, the broader implication for stock traders is that a US recession starts to look more likely again which would likely curtail any upside in stock prices near-term while traders await greater clarity.

Technical Views

SPX

The rally in the S&P has stalled for now into the 5,677.97 level again. The risk now is that we’re seeing a large double top formation, suggesting the potential for a broad reversal lower in coming weeks and months. Below current support of 5,502.19, focus turns to 5,268.67 as the next support to watch.