SPX Spotlight - Tuesday, Jan 7, 2025: Economic Data Sparks Market Selloff
Robust economic data dampened hopes for early interest rate cuts.
Introduction
The SPX opened at 5,975.38 and reached an intraday high of 6,025 before selling pressure intensified.
All three major U.S. indices ended lower, with the Nasdaq Composite falling 1.9% and the Dow Jones Industrial Average declining 0.4%.
Six out of eleven S&P 500 sectors finished in negative territory, with Technology and Communication Services among the hardest hit
Market Drivers and Economic Reports
The market's reaction on Tuesday, January 7, 2025, was primarily driven by two key economic reports that surpassed expectations, leading to a reassessment of potential Federal Reserve rate cuts:
Job Openings and Labor Turnover Survey (JOLTS)
The JOLTS report for November 2024 showed job openings rising to 8.098 million, significantly higher than the forecasted 7.7 million. This increase marks the first time job openings have exceeded 8 million since May 2024, indicating a strengthening labor market.
Key details include:
Vacancy rate increased to 4.8% from 4.6% in October
Quits rate rose to 1.9% from 1.8%
Hires rate remained steady at 3.3%
This unexpected surge in job openings suggests continued labor market resilience, potentially delaying the Fed's timeline for rate cuts.
ISM Services Index
The Services PMI for December 2024 registered 54.1%, a 2 percentage point increase from November's 52.1%. This expansion, marking the 52nd time in 55 months, indicates robust growth in the services sector.
Notable components include:
Business Activity Index jumped to 58.2%, up 4.5 percentage points
New Orders Index rose to 54.2%
Employment Index increased to 51.4%
Nine industries reported growth, while six reported contraction. The strong performance in the services sector, which accounts for more than two-thirds of U.S. economic activity, suggests underlying economic strength.
These reports collectively paint a picture of a resilient economy, potentially complicating the Federal Reserve's decisions on interest rate cuts in 2025. The stronger-than-expected data has led to a reassessment of monetary policy expectations, with market participants now anticipating a later start to the rate-cutting cycle.
Technical Analysis
Bull Case
We are sitting at a key support and although we had selloff the entire day, we held the trendline on a larger time frame.
We may get a bounce from the market to the pivot level at 5,933 if not higher.
Bear Case
Today was a big red day, and that could follow into tomorrow’s trading.
We are sitting at a previous support level as well as holding a trendline on a bigger timeframe, however, any weakness on economic reports could give up those levels.
The next target would be liquidity zone where SPX has exhibited false breakouts.
Market Sentiment and Key Indicators
Today markets confirmed a strong resistance on VIX at 18.90 level. If the rejection holds, 17.00 would be the next support level followed by 15.86.
VIX hitting lower to either of the targets is a bullish move and the markets could go green.
Multiple economic reports plus CES event this week will be adding volatility to the market.
Key Takeaways & What’s Next
Monitor the 5,910 support level on SPX closely.
Strong economic data has dampened hopes for early interest rate cuts, with traders no longer fully pricing in a Fed rate cut before July.
Upcoming economic releases, particularly the non-farm payrolls report and the Fed's December meeting minutes, are expected to influence market volatility.
Be prepared for potential increased volatility in the coming days as the market digests new economic data and reassesses its outlook for 2025.
Closing Thoughts
As always, it's essential to maintain a long-term perspective while navigating short-term volatility. Today's market reaction serves as a reminder that the path of monetary policy remains uncertain, and investors should be prepared for potential swings as new data emerges.
Will the S&P 500 find support at current levels, or are we in for a more significant pullback? Comment below.