Wall Street had a strong rally on Friday, with the S&P 500 and Nasdaq 100 reaching new record highs after the release of a mixed non-farm payrolls jobs report. This report has increased expectations that the Federal Reserve will consider cutting interest rates at its upcoming December meeting.
Over the past week, the Nasdaq 100 rose by 3.3%, while the S&P 500 gained 0.96%. However, the Dow Jones Industrial Average declined by 0.6%, showing a divergence in market performance among the major indices.
The non-farm payrolls report showed a significant rebound in total payrolls, increasing to 227,000 from a revised figure of 36,000. However, the household survey presented a more complex picture, with the unemployment rate rising to 4.2% and the participation rate slightly dipping to 62.5%. Analysts noted that without the decline in participation, the unemployment rate could have risen to at least 4.3%, indicating underlying challenges in the labor market.
The upcoming November consumer price index (CPI) report, set to be released on December 12, is being closely watched as the market anticipates the Federal Reserve's next moves. In October, the annual inflation rate in the United States rose to 2.6% year-on-year, while the core consumer price inflation rate remained steady at 3.3%. For November, analysts predict that headline inflation will increase to 2.7% year-on-year, while core inflation is expected to hold steady at 3.3%. The interest rate market is currently pricing in an 88% probability of a 25 basis point rate cut at the December Federal Open Market Committee (FOMC) meeting.
Technical analysis of the major indices shows that the Nasdaq 100 has been on an uptrend, breaking above previous highs and reaching its next target. As long as the index remains above short-term support levels, it is likely to test higher targets. However, a sustained break below a certain level could signal a deeper decline. On the other hand, the S&P 500 has seen gains since the U.S. elections and is expected to push towards a weekly trend channel resistance level if it maintains its position above short-term support levels. A break below a certain level could indicate a deeper pullback.
Historically, the period from mid-December to mid-January has been favorable for U.S. equities, with the last two weeks of December and the first two weeks of January showing promising average returns. This seasonal trend, combined with current market dynamics, suggests that investors may be positioning themselves for potential gains as the year comes to a close.
As the market considers economic indicators and seasonal patterns, the interplay between inflation data, labor market conditions, and Federal Reserve policy will be crucial in shaping investor sentiment and market direction in the coming weeks.