S&P 500 (SPX) seems unlikely to break out before FOMC

Stock markets fell slightly on Friday as the market digested the strong NFP report. It was not what the market had priced in, and equities still managed to perform admirably. Their initial reaction was negative with NASDAQ futures down over 2% on the release. By the close, the NASDAQ only lost 0.4%, while the Dow actually closed positive for the day.

S&P 500 (SPX) news

The overall sentiment now remains one of cautious optimism. Risk/reward is neutral, and so too is positioning from what we can see. Things can change quickly, but this week could be marked with largely sideways motion before the FOMC next week. We have the seasonality of Santa bulls shouting, but the FOMC could get all bearish after that NFP. Powell has already mentioned the jobs market is too strong for his liking, but the Fed is likely to stick to its higher rate story and that they are not done hiking.

At the same time, they will unveil a smaller 50bps hike, so it depends on how the market views this. Good news: rate hikes are slowing. Or bad news: why are they slowing and does it mean recession? Alternatively, bad news is just a 50bps hike but with many more to come. Earnings catalysts are out of the way, and the last data points look good for consumer staples. Nominal GDP growth is strong, and that usually should support company earnings into the next quarter. Further out things may be more challenging, but there is not enough visibility to take that trade yet. 

S&P 500 (SPX) forecast

Technically, 4,031 is the pivot and key support. Hold above and it is likely we will retest 4,100 shortly. Break below and 3,946 will be tested. That is the medium-term pivot. Strong resistance at 4,100, and then 4,325 becomes the target. 

SPX daily chart