Wall Street: US equity markets leap on Fed rate cut hopes after jobs data surprise

US equity markets surged higher on Friday night to conclude a volatile week in positive territory, after a weaker-than-expected jobs report led the interest rate market to price in a second 25 basis point (bp) Fed rate cut before year-end. For the week, the Dow Jones gained 1.14%, the Nasdaq added 0.97%, and the S&P 500 gained 0.55%.

April jobs report: unpacking the numbers

Within the details of Friday's jobs report, the US economy added 175,000 jobs in April, a significant reduction from March's 315,000 jobs. The unemployment rate edged higher to 3.9% from 3.8%, while average hourly earnings eased to 3.9% YoY from 4.1%. Encouraged by Fed Chair Powell's comments that unexpected labour market weakness could prompt the central bank to cut rates, a 25 bp rate cut has been brought forward to September, with a second 25 bp rate cut priced for December.

While expectations of additional Fed rate cuts would typically support equity markets, news over the weekend reported that Warren Buffett’s Berkshire Hathaway has reduced its holdings in major companies, raising eyebrows given the Sage of Omaha’s phenomenal track record.

This week's economic calendar is relatively light, with the main highlights being speeches from several Fed officials and the Michigan Consumer Confidence Index. The Q1 2024 Earnings season continues, with companies scheduled to report this week including Palantir Technologies, Walt Disney, Twilio, Lyft, Uber, Airbnb, Robinhood, Roblox, and Dropbox.

What is expected from the Michigan Consumer Confidence Index

Date: 11 May at 12am AEST

Last month the University of Michigan consumer sentiment index was revised lower to 77.2 from 79.4 in March, which was the highest level since July 2021. Both current conditions and future expectations declined more than expected, while inflation expectations were revised higher to 3.2% from 3.1%.

This month the market is anticipating a further reduction to 76 as consumers become more cautious about the labour market and persistent inflation.

US Michigan Consumer Sentiment

Source: TradingEconomics

S&P 500 technical analysis

There is no change to our view that the rally from April 19 at the 4,953 low is the second wave (Wave B) of a three-wave (ABC) corrective sequence, unfolding from the 5264 March high. Once the current B wave rally is complete, we expect another leg lower (Wave C) towards the 4850/4750 area, where we will look closely for signs of basing to establish long positions.

For this scenario to play out, the current rally (Wave B) should spend minimal time above 5200. Be aware that should the S&P 500 cash trade above 5264, it would indicate the correction likely finished at the April 19 low and the uptrend has resumed.

S&P 500 daily chart

Source: TradingView

Nasdaq technical analysis

There is no change to our view that the rally from the April 16,973 low is the second wave (Wave B) of a three-wave (ABC) corrective sequence, unfolding from the 18,464 March high.

Once the current B wave rally is complete, we expect another leg lower (Wave C) towards the 16,500/16,300 area, where we will look closely for signs of basing to establish long positions.

For this scenario to play out, the current rally (Wave B) should spend little time above the resistance (formerly support) at 18,000. Be aware that should the Nasdaq cash trade above 18,464, it would indicate the correction likely finished at the April 19 low and the uptrend has resumed.

Nasdaq daily chart