MarketBeat Minute

Equity markets rebounded on Thursday on hopes that labor data would be a Cinderella story. The data can not be too hot or cold or may raise fears of higher interest rates for longer or looming recession, depending on which way the wind blows. In either case, the outcome for the S&P 500 will be tepid earnings growth in 2024. The S&P 500 advanced 0.75% at the session's peak and remains within a tight range at critical resistance.

Next week will be a hot one for traders. The economic calendar is filled with potentially market-moving events running from the Retail Sales figure through inflation and an FOMC policy announcement. What makes next week different from others is that the PPI and CPI will come out ahead of the FOMC decision and could drastically alter the outcome. The data is expected to cool from the previous month; the question is by how much. Enough to put the committed on track to cut rates in early 2024 or enough to cause concern that inflation is falling too fast?

Equity markets tried to rebound on Wednesday but stumbled after getting what they wanted: soft labor data. While the ADP and JOLTs figures suggest softening in the labor market and may lead the FOMC to cut rates sooner than expected, there is a downside that should be considered. Slowing labor market growth and business spending will impact GDP in 2024 and may lead the economy into recession. The odds of a soft landing have grown in recent months, but investors should not be sanguine, the Fed has been behind the curve since the beginning of the inflation crisis and is unlikely to proactively cut rates. Cutting too soon will result in accelerating inflation and higher rates for longer.

The S&P 500 continues hovering at critical resistance with several potential catalysts. The first comes on Friday with the NFP report, expected to show a solid job gain of 190,000, the next is the following week and includes a double-shot of inflation news, the FOMC decisions and retail sales. The CPI and PPI will most likely confirm slowing inflation but the retail sales may also confirm weak spending and lackluster holiday season.

Equity markets continue to trend within a tight range below critical resistance. At the same time, good news continues to emerge but it is more of a sell-the-news event because the news is centered on weakening economic data. A softer than expected JOLT figures suggest a pullback in business spending and hiring that will aid a reduction in inflation. The bad news is that reduced business spending and hiring will also result in soft GDP growth and a weaker consumer.

The S&P 500 is hovering at critical resistance with a catalyst due on Friday. The monthly job growth figures are expected to show sustained labor market health but may give the market what it wants: soft data and a reason for the Fed to cut rates. The risk now is that the market may indeed get what it wants and more, the recession everyone feared would happen but didn't.

Equity markets pulled back on Monday to potentially end 5 straight weeks of historic market gains. The S&P 500 rose more than 12% in that time to set a new high for the year but may not be able to move much higher. The market is still trading within a significant range, and there is little reason to think it can continue to rally. While the peak of the Fed's interest rate cycle is near, there is still much uncertainty in the 2024 outlook, and the consensus figures for earnings growth continue to decline. The latest figures for Q4 have S&P 500 EPS growth at only 3%, down nearly 1000 basis points from the peak set earlier this year.

Economic data is the most visible market-moving event this week. About a dozen reports are due, with the NFP and labor data topping the list. The NFP is expected to show persistent strength in the labor market and give the FOMC little leeway with their next decisions. Consumer inflation is cooling, but tight labor market conditions are a tinder box for inflation provided a catalyst: the Fed indicating lower rates are coming is a catalyst the market is desperate to see.

Equity markets advanced last week, but the top to this rally is closer than ever. The bulk of the week's movement occurred on Friday, which is a generally bullish signal but met resistance near recent highs. The technical picture suggests the market hit the ceiling and stands to correct any day and maybe spurred to sell off this week. This week brings the latest labor market data, which is expected to align with labor market health and wage inflation.

The risk for markets is oil. Oil has been a wild card in 2023, but the odds are high that the price will rise soon. OPEC's latest production moves will take some time to impact but keep the supply/demand outlook tight. In this scenario, the price of oil is unlikely to stay down long and could rebound to the top of the EIA's target range for next year. That puts the price of oil at an average of $89 per barrel in 2024 and in position to keep inflation running hot.

Equity markets continue to tread water near critical resistance. Thursday's action was driven by an as-expected read on consumer inflation that reinforces the idea the FOMC will start cutting interest rates soon. The risk is that rapidly slowing inflation will turn into receding inflation and drive the Fed to make aggressive cuts. In that scenario, the release of pent-up demand in the housing sector could send inflation back to record highs.

Next week will bring another hurdle for market participants. The monthly labor data is due out and will either confirm persistent labor market strength and wage inflation or show eroding business activity. In either case, the S&P 500 earnings growth outlook will suffer and cap gains for equities. As it is, the range-bound S&P 500 is trading near critical resistance, showing a string of Spinning Tops with deteriorating indicators with a substantial risk of correction.

Equity markets tried to advance on Wednesday but could not hold the gain. The result is another day of sideways trading near recent highs in a string of sideways moves that are beginning to look like a frothy market top. Wednesday's action was driven by a hotter-than-expected revision to Q3 GDP and reinvigorated fear of higher interest rates for longer.

Without a catalyst to drive it higher, the odds are high that the S&P 500 will begin to correct soon. The indicators point to an overbought market and waning momentum about to swing into negative territory. Such a move would confirm a bearish sentiment with the index trading at critical resistance and could lead sellers into the market. One potential catalyst will be released today, the PCE price index, and the next FOMC meeting is only 2 weeks away.

Equity markets wavered for the 5th consecutive trading day on Tuesday as participants waited on critical inflation data. The latest read on the PCE price index is due Thursday and will lead the market to its next move. The data is expected to cool compared to the prior month and previous year, confirming the idea the FOMC is done raising rates. The question is if the data will indicate higher rates for longer or point to the first interest rate cuts since 2020.

Another cause for market concern is OPEC+. The cartel is set to meet again on Thursday and is expected to confirm additional production cuts. The cartel is working hard to keep the supply/demand imbalance tilted toward higher prices but non-OPEC production continues to rise. If the cartel is successful with its plans it could underpin inflation and keep the FOMC in a hawkish position regardless of the PCE Data.

Equity markets began the week on uncertain footing as investors look ahead to what December will bring. The S&P 500 hugged the flat line throughout the day, leaving the markets slightly lower at the session's end. The cause for concern includes the OPEC+ decision on production targets, which was delayed from last week, and the October reading of the PCE price index. OPEC+ is expected to reduce production to support oil prices, and the PCE index is expected to cool. While one new byte is expected to cap gains in equity markets, the other could spur the market to new heights. In either case, investors should not chase prices and be prepared for volatility.

The question on everyone's mind is if Santa Claus will bring a rally to town this year. The Santa Claus Rally traditionally starts a week or two before the Christmas Holiday and tends to leave equity markets higher at the end of December. This is more true in election years when pre-election positioning helps to lift equities. If Santa Claus does bring a rally to town, the S&P 500 could end the year at a record high.

Equity markets advanced the week of Thanksgiving as investors gave thanks for slowing inflation. Although still hot, inflation has cooled to the point that the FOMC is expected to start cutting rates in the first half of 2024. The coming week's PCE Price Index may confirm the trend and, if so, spur the market to new highs. The risk for traders and investors is that the market will top out soon due to the declining estimates for Q4 earnings.

The Q3 earnings season was better than the consensus estimate at the start of the reporting season, which aligns with the trend. The consensus for Q4 imploded during the cycle, which also aligns with trends and suggests a weak holiday quarter and earnings weakness in Q1 of 2024. In this scenario, a persistently declining outlook for earnings will weigh on the market as the quarters progress and keep the market range bound regardless of the FOMC's next move.