Can US jobs report stop SPX500_m’s slide?

The US market has just experienced the largest single-day drop since April, bringing SPX500_m – daily down 2.1% on Wednesday from 2023’s intraday highs of 4611.4.

“Amid this selloff, markets are also keeping a wary eye on Friday’s US nonfarm payrolls report.”

The headline number is forecasted to come in at 200,000. If so, that would mark its lowest number of new jobs added to the US economy since before the pandemic.

The July unemployment rate is expected to hold steady at 3.6%, while wage growth is slated to have eased slightly last month.

• A stronger-than-expected US jobs report tomorrow may worsen the selloff for the SPX500_m, as markets fear that a resilient US jobs market would embolden more Fed rate hikes.
• However, signs of further cooling in the US labour market may help the SPX500_m pare down recent declines.

 

What contributed to the recent selloff?

A surprise downgrade of the US credit rating along with a stronger than expected ADP Nonfarm Employment report made investors wary if whether the Fed will be able to maintain the pause on the future interest hikes.

The timing of the US credit rating downgrade coincided with an announced increase in bond sales by the US Treasury. The latter pushed the 10-year bond yields to as high as 4.16%, reaching November 2023 highs (yields go up when the bond prices go down).

This climb in yields thus forced some investors to retreat from the high-risk assets such as stocks.

The S&P 500 bulls could not sustain the upward momentum amid the rising uncertainty regarding the Fed’s future interest rate policy. After briefly moving beyond 4600 psychological level, SPX500_m – daily experienced a sharp decline, penetrating the 21-SMA.

The Relative Strength Index (RSI) lies at 51.5 – right in the middle of the upper and lower boundary (70 – overbought; 30 – oversold), reflecting the market’ current state of uncertainty.

As earnings season continue, with Apple and Amazon to post Q3 results later today, the SPX500_m – daily might experience some additional volatility.

Potential support levels:

Further declines for SPX500_m may invite bears to test these immediate support levels:

• 4450 region: resistance area for previous two cycle highs
• 50-day simple moving average (SMA)
• 4382.0: mid-July cycle low

However, a set of better-than-expected Big Tech earnings and forward guidance, along with a weaker-than-expected NFP report, may restore SPX500_m back closer to its year-to-date high.