(Bloomberg) – Stocks have seen a lot of volatility near a key technical level as traders wait for the all-important jobs report for clues on the Federal Reserve’s next policy moves. The dollar fell along with bond yields.
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A big fight is unfolding around the 200-day moving average of the S&P 500 – a metric seen by some analysts as a harbinger of further movement should a breakout occur. The stock gauge breached that mark after a massive rally led by signals from Jerome Powell of a slowing pace of tightening – but struggled to find solid footing on Thursday.
“The lower the pullback, the better the chance the market will rise further,” said Fawad Razaqzada, market analyst at City Index and Forex.com. “The bears, on the other hand, will need to defend this downtrend line and push the market back below the 200 day, if they want to keep this year’s downtrend intact now that we head into the final month of the year. “
Stocks closed little change after falling on data showing U.S. manufacturing contracted in November for the first time since May 2020. The report added to concerns that Fed hikes will boost the odds of a a recession and temper optimism with news that a consumer price gauge had the second lowest increase this year.
The Bloomberg Dollar Spot Index fell to its lowest since June. The Treasury’s rally accelerated amid a decline in Fed tightening expectations. Bets on when the central bank rate will peak have now fallen below 4.9%, according to swap markets. The current benchmark is in a range between 3.75% and 4%.
Read: Williams says Fed has some way to go before rates get high enough
The Chicago Fed Bank has named Austan Goolsbee, an economist and former adviser to President Barack Obama, as its new chief to replace Charles Evans, who is retiring in January. In an interview with Bloomberg Radio on Oct. 31, Goolsbee said a peak in the benchmark federal funds rate of around 5% “makes a bit of sense to me.”
The remarkably resilient U.S. job market is starting to cool, but Friday’s jobs report will be a far cry from the turning point Fed officials are looking for in their fight to bring down inflation. There are signs that labor demand is waning, but a deeper slowdown is needed to bring that demand more in line with labor supply to contain wage growth.
The median projection from a Bloomberg survey of economists calls for a payroll increase of 200,000 in November and an increase in hourly wages of 4.6% from a year ago.
Concerns about how far central bankers will go to tame inflation have kept investors on edge and stocks volatile. JPMorgan Chase & Co.’s Dubravko Lakos-Bujas said sharp declines await U.S. stocks in the first half of 2023 amid a mild recession and Fed hikes.
The prediction comes on top of calls from strategists at Goldman Sachs Group Inc. and Deutsche Bank AG that U.S. stocks are in for a wild ride next year.
“The next mountain to conquer, and that will be the target for 2023 I believe, is the economic consequences of such a rise in interest rates, the higher cost of capital that businesses and households have to face and the recession it creates,” said Peter Boockvar, Chief Investment Officer at Bleakley Financial Group.
Read: JPMorgan warns S&P 500 rebound likely to stagnate in January
“We don’t believe the macroeconomic conditions for a sustained market recovery are yet in place,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, who sees the cumulative impact of the rises weighing on economic growth and stocks. business profits.
From a technical standpoint, however, history offers encouraging signs for US equities once they break above a long-term trendline after spending months below it.
In the previous 13 periods, the S&P 500 was below the 200-day moving average for more than six months, then closed above it, the index posted an average return of 12% over the next six months and 19% a year later, according to Ryan Detrick, chief market strategist at Carson Group.
BTIG’s Jonathan Krinsky notes that while a big rally took the US stocks gauge through its 200-day moving average, it also took it straight to the downtrend line from the January highs.
“The slope of the 200-DMA is often more important than whether the price is above or below,” he added. “Consider that in 2002 there were several attempted rallies that broke above the 200-DMA decline, only to fail and retrace to new lows.”
Key events this week:
U.S. unemployment, nonfarm payrolls, Friday
ECB’s Christine Lagarde speaks on Friday
Some of the major movements in the markets:
The S&P 500 was little changed at 4 p.m. PT
The Nasdaq 100 has changed little
The Dow Jones Industrial Average fell 0.6%
The MSCI World index rose 0.8%
The Bloomberg Dollar Spot Index fell 1%
The euro rose 1.1% to $1.0523
The British pound rose 1.5% to hit $1.2243
The Japanese yen rose 2% to 135.35 per dollar
Bitcoin fell 1.1% to $16,914.09
Ether fell 1.9% to $1,271.94
The yield on 10-year Treasury bills fell 10 basis points to 3.51%
Germany’s 10-year yield fell 12 basis points to 1.81%
The UK 10-year yield fell six basis points to 3.10%
West Texas Intermediate crude rose 0.9% to $81.26 a barrel
Gold futures rose 3.3% to $1,817.20 an ounce
This story was produced with assistance from Bloomberg Automation.
–With help from Vildana Hajric, Peyton Forte and Michael Msika.
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