Can NFP Propel US Stocks Back to Yearly Highs? –


S&P 500 Analysis

US Equities Recover Lost Ground as Data Sends Real Yields Lower

The top 500 US stocks ranked by market capitalization have partially recovered one of the deepest pullback seen during the current bull market. Rising risk-free rates (US treasuries) at a time when inflation has declined, has resulted in higher US real yields (nominal treasury yields less inflation). Rising risk-free yields attract risk averse investors chasing higher risk-adjusted yields during enhanced uncertainty.

Fed Chairman Jerome Powell downplayed a rate hike this month but left the door open to one before the end of the year, as the rate setting committee awaits incoming data to guide future policy decisions. The S&P 500 recovery over the last two weeks coincides with the tapering off of Treasury Inflation Protected Securities (TIPS) and another forward looking measure of real yields shown below. The move lower in yields has been driven primarily by weaker than expected US growth and jobs data. Both categories have been targeted by the Fed and remain crucial to seeing inflation reach the 2% target.

5-Year, 5-Year Forward Inflation Expectation Rate


Source: St Louis Fed, prepared by Richard Snow

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S&P 500 Still Ahead of the Curve Implied by Bull Market Projection

In June we highlighted the technical bull market that had developed when the index rose 20% off its low. After compiling an average return six and twelve months after confirmation of a technical bull market, the index is currently around the six-month projection after just two months. The average twelve-month projection is marginally higher than the six-month number – both having been surpassed in July already.

S&P 500 Weekly Chart Showing Average Bull Market Projections


Source: TradingView, prepared by Richard Snow

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S&P 500 Stands to Gain on Potential Jobs Disappointment

The S&P 500 ended a five-month winning streak at the end of August but the longer-term bullish continuation remains a possibility as worsening indicators around the jobs market accumulate. An area of interest for S&P 500 upside appears at 4607 – the intersection of the long-term trendline and the 2023 high (highlighted in yellow).

The MACD crossover suggest that upside momentum remains intact but keep in mind that the NFP report has the potential to produce wild price swings even if the resultant price action is little changed. The lead up to NFP has erred on the side of caution as labor statistics revealed signs of weakness in the sector. A much better than expected print is likely to take the market by surprise given the negative lead up to NFP and could see risk sentiment ease into the weekend. Levels of interest to the downside include 4450 and the prior swing low of 4325 – a pivot point in June and August respectively.

S&P 500 Daily Chart


Source: TradingView, prepared by Richard Snow

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— Written by Richard Snow for

Contact and follow Richard on Twitter: @RichardSnowFX


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