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Wall Street: Cooling labour market data helps US equity indices lock in weekly gains

US equity markets soar amidst hopeful signs of Fed rate pause; Nasdaq up 3.67%, S&P gains 2.50%, Dow Jones adds 490 Points (1.43%) and labour market data and inflation shifts fuel optimism.

Source: Bloomberg

US equity markets' post-Jackson Hole rebound

US equity markets extended their post-Jackson Hole rebound last week as cooler-than-expected labour market data and lower inflation raised hopes that the Fed is at the end of its rate-hiking cycle. For the week, the Nasdaq added 3.67%, the S&P gained 2.50%, and the Dow Jones added 490 points (1.43%).

Diverging sectors

August's labor market report showed the US economy created +187k jobs, exceeding consensus expectations of +170k. However, a combination of downward revisions to the prior two months, the unemployment rate rising to 3.8% (the highest since Feb 22), and a softer-than-expected JOLTS job openings and ADP employment report earlier in the week will likely see the Fed stay on hold in Sep.

Also, on Friday night, the ISM manufacturing PMI increased to 47.6 in August from 46.4 in July. Despite the improvement, it was the tenth consecutive month the manufacturing index has spent in contractionary territory (below 50).

In contrast, the ISM services PMI, due out later this week, is expected to record its eighth month of expansion, highlighting the divergence between the manufacturing and services sectors.

What is expected from ISM Services PMI

Thursday, 7th Sept at 12.00 am AEST

The market is looking for the ISM services PMI to fall to 52.5 from 52.7 in July. Additionally, it will look for some moderation in the Prices Paid sub-index, which last month rose to a three-month high of 56.8. Signs of moderation in the Prices Paid index would help provide the Fed with the flexibility to extend its pause past September.

US ISM services PMI

Source: TradingEconomics

S&P 500 technical analysis

Last week's recovery in the S&P 500 exceeded our own 4490/4500 reassessment zone, which resulted in a more neutral bias in the S&P 500.

Taking a fresh perspective this week, the rally from the 4350 low to the 4547.75 high might be considered as Wave B or the second wave within a three-wave corrective sequence.

If the S&P 500 fails to significantly extend its gains early this week beyond Friday's high of 4547.75 and subsequently loses support at 4480 (on a closing basis), it could signal the onset of the third wave of a correction, with support levels in the 4250/4200 area.

However, it's important to note that as long as the S&P 500 remains above the support at approximately 4480, there's a possibility of a retest of the July high at 4634.50.

S&P 500 daily chart

Source: TradingView

Nasdaq technical analysis

Like the set-up touched on above in the S&P 500, it is possible that the rally in the Nasdaq from the 14,609 low to the 15,661 high is Wave B or the second wave of a three-wave corrective sequence.

Should the Nasdaq fail to extend gains in the early part of this week above Friday's 15,661 high and then lose support at 15,320 (closing basis), it would warn that the third wave of a correction is underway, which targets support at 14,200.

It's important to remain aware that as long as the Nasdaq holds above the support level at 15,320, there's potential for a retest of the July high at 16,062.

Nasdaq daily chart

Source: TradingView

  • TradingView: the figures stated are as of September 04, 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.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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