S&P 500 and Nasdaq 100 attempt to build higher as latest data gives traders some confidence
12:25, 1 March 2023
And just like that, another round of data serves to shake market expectations and confidence. Just when we thought that everyone was confident that the economy was on the road to recovery once again US consumers seem to have lost confidence in the economy in the month of February, as per the data released on Tuesday by the Conference Board (CB) which showed a drop to 102.9 from 106, which was revised downward from 109, as markets were expecting a rise to 108.5.
This latest reading falls back in line with the positive sentiment in equity markets as it helps fight inflation, which then allows the Fed to be less aggressive with their policy tightening. So far in the pre-market on Wednesday the S&P 500 and Nasdaq are up 0.53% and 0.79% respectively as risk appetite gets a small boost. US yields are struggling to find further support with the 10-year yield having bounced off resistance just below 4% for 4 days in a row, which is also weighing on the US dollar.
That said, the labour market remains hot which has led to an improvement in the perception of the jobs market, which isn’t great for the Fed despite the drop in sentiment in the overall economy. We’ll have to wait until next Friday to get the jobs data for February but we know the Fed is looking for a slowdown in job creation to combat inflation and therefore stop hiking rates sometime this year, with the terminal rate now being priced in at 5.4% in July, an improvement in market pricing from the 5% forecasted at the beginning of the year.
As we start a new month we need to consider how much market pricing can shift in the coming weeks. The improvement in economic data over the last month halted the bullish run we saw in January and has largely left markets with a lack of direction. Seeing that the market-implied rate curve has caught up with how the Fed was shaping it to be at the end of last year, and given the pullback in equity markets in February one could think that there is room for some renewed upside over the coming weeks.
Of course, this will depend largely on the upcoming data, most notably the jobs data next Friday (10th March) but given how expectations are heavily skewed towards another strong reading there may be more room for disappointment in the data, which would give equities a boost.
So far, both the S&P 500 and the Nasdaq are holding above their 200-day SMAs but they are not too far off them after the pullbacks seen earlier this month. These lines will serve as a crucial gauge of support as they have been so important as resistance/support over the past 12 months. A move below them will signal that the drop in risk appetite continues to take hold and a further pullback cannot be ignored, with the 2022 descending trend line as the next area to focus on at 3,885 for the S&P 500 and 11,200 for the Nasdaq. Given the lack of clarity on the data front, I struggle to see the bullish momentum really taking off so there is likely to be some resistance up ahead where the recent daily highs have been as the indices likely consolidate sideways a little longer.
S&P 500 daily chart
S&P 500 daily chart. Photo: capital.com. Source: tradingviewNasdaq 100 daily chart
Nasdaq 100 daily chart. Photo: capital.com. Source: tradingviewRelated topics