S&P 500 rebounds after printing fresh annual lows just above 4,100, with Fed and NFP in focus

In a choppy start to the month, the S&P 500 index hit a fresh annual low just above the 4,100 level shortly after the US open, only to then reverse about 50 points higher again. At current levels near 4,150 the index trades with gains of about 0.6% on the day, with investors focused on a barrage of key upcoming risk events, including Wednesday’s Fed meeting and Friday’s release of the April US labour market report.

While investors will welcome Monday’s bounce from annual lows, most won’t be betting that the recovery extends back to mid-April levels around the 4,400s. The Fed is expected to hike interest rates by 50 bps this week, as well as signaling more rate hikes of at least 50 bps in the meetings ahead in its bid to get interest rates back to around 2.50% by the year’s end to tame inflation. The bank is also expected to announce its quantitative tightening plans.

Ahead of this, longer-term US bond yields are back on the front foot, with the 10-year looking to break back above 3.0% for the first time since late 2018. If this trend continues this week, that will create a particularly difficult backdrop for high price/earnings ratio stocks, which includes most large-cap tech and growth stocks, to continue to recover.

And it's not just higher interest rates and Fed tightening that investors have to worry about. Growth concerns have been in focus at the start of the week, with official Chinese April PMI surveys out over the weekend and missing expectations by some margin, and the latest underwhelming US ISM Manufacturing PMI figures not helping. The headline index fell to its weakest since 2020, just as the supplier delivery sub-index hit a five-month high to reflect worsening lead times the Russo-Ukraine war and China lockdowns worsen global supply chain issues.

The latest index also suggested that firms continued to struggle to hire/hold onto workers in April, suggesting that while indicators of labour market slack released in Friday’s official labour market report may remain robust, the headline NFP number might be weak.

Turning to the other major US indices; the tech-heavy Nasdaq 100 index was last trading about 0.6% higher, though also hit fresh annual lows earlier on Monday and remains unable to break back above the 13,000 level. Meanwhile, the Dow was last trading higher by about 0.3%, though still remains above 33,000 and about 2.5% above earlier annual lows.