S&P 500 futures were rising early Monday after a correction last week. Markets are bracing for a week of important events, from the announcement of the U.S. Treasury’s borrowing plans to the FOMC’s comments on interest rates and the monthly jobs report.
The S&P 500 index fell more than 10% from its peak in late July to last Friday’s close, informally seen as the beginning of a correction.
Technically, the sell-off in stocks intensified after the S&P 500 failed to break through resistance at its 50-day moving average in mid-October. He then quickly returned to the 200-day level, but there was only a temporary consolidation and no rebound.
This week could very well set the tone for the market for the rest of the year for several reasons.
First, top events in the financial world are concentrated here. The U.S. Treasury’s quarterly borrowing plan will be announced on Wednesday. Treasury demand could set the tone for bond markets, and Bloomberg said the announcement was more important than the Fed’s comments.
The FOMC’s official statement and Chairman Powell’s remarks at the press conference provide an opportunity to shake up interest rate expectations. Markets are focused on the probability of a December rate hike (currently 24%) and guidance on when the central bank will start cutting rates.
Friday will be the labor market. The September report showed strong employment growth, but weak wage growth. Which will be the trend?
Second, the market appears to be technically oversold in the short term, creating the possibility of a pullback. The popular technical oscillator RSI reached oversold territory at Friday’s close. A rebound before regular trading brought the market out of oversold territory. This could be a repeat of what we saw in early October. A return to normal levels from oversold conditions in September last year also led to impressive capital inflows into stocks.
Third, after nearly three months of declines, the market has pulled back from extreme conditions, highlighting very healthy consumer demand in the US and proving attractive to buyers.
If it falls below 200 days, it could turn out to be a false break like in March. But buyers were encouraged by the Fed’s determination to support local banks. But supporting this hypothesis would require a clear signal from the Fed that despite solid data, there is no point in raising rates further.
Even better, if we get confirmation on Friday in the form of further slowing in wage growth as employment increases, we’re officially on the downtrend and it’s risky to jump. From a technical perspective, a significant (2% or more) increase in daily results on Wednesday or Friday can be an important signal.
