Wall Street: US equity indices ignite following Fiscal Act and payroll report

[MongiIG]

Following a pivotal week for US equities marked by Congressional moves and robust employment data, market focus shifts to central bank meetings and impending data releases.

 

Source: Bloomberg

 

Indices Shares Dow Jones Industrial Average S&P 500 Nasdaq United States

 Tony Sycamore | Market Analyst, Australia | Publication date: Monday 05 June 2023 

US equity indices roared into overdrive as last week drew to a close, turbocharged by the passage of the Fiscal Responsibility Act in Congress, an outperforming non-farm payrolls report, and the anticipated stimulus measures in China.

Confirming the resilience of the US economy, non-Farm payrolls rose by 339k in May vs 195k expected. Providing a "Goldilocks" element, the unemployment rate rose to 3.7% from 3.4%, its highest level since October, while Average hourly earnings ticked down to 4.3% YoY from 4.4%.

The jobs report did little to change the pricing for the June FOMC meeting, which closed at around 7bp or 30%. However, the July meeting is now 50% priced for a rate hike into the 5.25-5.50% range.

This week, the market will focus on two central bank meetings (The RBA and BoC) for possible clues as to whether the FOMC will hike rates or pause its rate-hiking cycle in June.

Also of interest will be the US May ISM services report (Tuesday, June 06 at 12.00 am AEST) which, along with next week's inflation report, will be the last major data release before the June FOMC meeting on June 15.

ISM: expectations and implications

In April, the ISM services increased to 51.9 from 51.2 in March, highlighting the divergence between the soggy manufacturing and resilient services sectors.

Behind the solid number was an increase in new orders (56.1 vs 52.2) and new export orders (60.9 vs 43.7). In May, the market is looking for the ISM services to increase to 52.4 for a fifth consecutive month of growth in the services sector.

S&P 500 technical analysis

Following its explosive rally on Friday, the S&P500 has followed the road map nicely to be eying the August 4327.50 high - from last week's update here.

"Presuming the S&P 500 can hold above range highs 4210/4185 (closing basis), allow for the S&P 500 to rally initially towards the August 4327.50 high".

Should the S&P 500 move above 4327.50, the next significant resistance level is not until 4500/50. On the downside, strong support is viewed near old highs of 4210/00. Aware that a break and daily close below support at 4185/4175ish would indicate that last week's break higher has failed.

S&P 500 daily chart

 

Source: TradingView

Nasdaq technical analysis

As we noted last week, during the dot com bubble of the late '90s and many others since, when animal spirits take hold, rallies can extend further than expected.\, such was the case last week with a new 52-week high.

We expect AI mania to remain a driver of the Nasdaq in the months ahead, with the technology still too early in its lifecycle to disappoint relative to expectations. Pullbacks in AI-related tech stocks and the Nasdaq will likely be met by buyers looking to position for the next leg higher towards the 15,268 high of March 2022.

Nasdaq daily chart

 

Source: TradingView

Dow Jones technical analysis

After its strong rally on Friday, the Dow Jones has broken (again) above downtrend resistance from the bull market 36,952 high.

However, before getting carried away there is still much wood to chop.

The Dow Jones needs to break above the May 34,257 high, the 34,342 year-to-date high and the December 34,712 high to claim to set up a test of the 35,492 high from April 2022 before the all-time 36,952 high.

On the downside, the Dow Jones continues to find good support coming from the 200-day moving average, currently at 32,762.

Dow Jones daily chart

 

Source: TradingView

1. TradingView: the figures stated are as of June 5, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.