SPX Spotlight - Wednesday, Jan 8, 2025: Wall Street Steadies After Tuesday's Tumble
Markets navigated a mix of economic data and Fed commentary, setting the stage for a crucial jobs report on Friday.
Introduction
The SPX opened lower but gradually climbed throughout the session, reaching a high of 5,925.37 before settling at 5,918.25. The index gained 9.22 points or 0.16% for the day. Energy stocks led the charge, with the S&P 500 Energy Index rising 2.2% year-to-date, outpacing all other sectors.
Market Drivers and Economic Reports
The ADP National Employment Report released on January 8, 2025, showed private sector employment increased by 122,000 jobs in December 2024, falling short of the expected 139,000 addition.
This indicates a deceleration in job growth, reflecting a cooling labor market. Key highlights include:
Goods-producing sectors added 10,000 jobs, while service-providing sectors contributed 112,000 positions.
Manufacturing declined for the third consecutive month, losing 11,000 jobs.
The healthcare sector emerged as a significant contributor to job creation in the latter half of 2024.
Annual pay growth slowed to 4.6% year-over-year, the lowest since July 2021, while job-changers saw a 7.1% increase. This slowdown in wage growth could potentially ease inflationary pressures.
The Federal Reserve's December meeting minutes, released on January 8, 2025, revealed growing concerns about inflation and the potential impacts of President Trump's policies. Officials expressed apprehension regarding:
The effects of potential shifts in immigration and trade policies on the U.S. economy.
Upside risks to inflation, attributed to recent higher-than-anticipated inflation figures.
As a result, the Fed has adopted a more cautious approach towards interest rate reductions. The central bank now projects only two rate cuts in 2025, down from the four forecast in September. The federal funds rate is expected to be at a median level of 3.9% by the end of 2025, higher than previously anticipated.
These economic indicators and policy shifts have led to a recalibration of market expectations. Investors have scaled back their expectations for Fed funds rate cuts in 2025, with an increasing number believing the central bank might not cut rates at all this year. This cautious outlook is driven by:
The economy running hotter than expected.
Stubborn inflation persisting above the Fed's 2% target.
Uncertainty surrounding the impact of potential Trump administration policies on inflation and economic growth.
Technical Analysis
Recap
Multiple economic reports along with FOMC minutes chopped the market the whole day. SPX kept swinging in a tight range for the entire session. This could potentially signify market makers switching hands, creating a strong liquidity zone.
Bull Case
We have two bull scenarios:
We gap down towards the trendline, retest it, and move upwards targeting pivot level.
We straight rip through the pivot level and retest the resistance level. Although, this scenario looks too optimistic.
Bear Case
We had previous rejections from the pivot level and it could act as strong resistance level for the Friday session. Retest and hold of the trendline would be healthy for the move required for the next week.
Market Sentiment and Key Indicators
A retest of resistance at 18.90 and making moves lower towards 17.00 looks like most probable move to form a healthy structure.
Vice versa couldn’t be ignored either - pullback to 17.00 and move upwards to 18.90.
Key Takeaways & What’s Next
Recent strong economic data, including better-than-expected job openings and ISM Services Index, may delay anticipated rate cuts. This could lead to increased market volatility as investors adjust their expectations.
Nonfarm payrolls and unemployment rate could provide enough catalyst for the markets to make the moves discussed.
Closing Thoughts
With mixed economic signals and the SPX showing resilience after Tuesday's decline, do you think we'll see a breakout above 5,918 following Friday's unemployment report, or will concerns about persistent inflation keep a lid on gains? Comment below.