The S&P 500 gave back Wednesday's gains in the early going, but it still holds above key support. There has been a trading range since December 16, with support from those hoping for positive seasonality and resistance from those that are focused on the economy and the Fed.
Thursday morning the economic news was strong, and that is not what the market wants to see at this point. APD employment data showed an increase of 235,000 jobs versus estimates pf 150,000, and jobless claims fell to a 3 1/2 month low of 204,000. Annual pay was up 7.3% year over year, which is slightly lower than 7.6% in November.
The jobs market remains strong, which is exactly what the Fed is concerned about. The market doesn't seem to want to acknowledge that this is an issue. The argument is that the strong jobs market will make a recession less likely, but the problem is that the Fed really needs to create a recession to get inflation under control.
Friday morning we have the December jobs report, which will be a major factor in whether or not the S&P 500 can continue to hold lows around 3800 or so. If jobs are strong, then the odds of a 0.5% hike at the next meeting will continue to rise.
The market has been anticipating a 0.25% hike at the next Fed meeting January 31-February 1, but the odds of a 0.5% hike jumped to 45% from 30% Thursday morning after the jobs data.
Not only is the data not favorable, but the Fed does not like the fact that the market seems to be fighting its hawkishness. There are many comments about how the market doesn't seem to fully understand the Fed's determination to kill inflation. Fed members are willing to create a recession if necessary.
For now, the indexes are holding, but we need to watch the S&P 500 support at 3800 very closely. If that doesn't hold, then a retest of the 12-month lows will come into play.
I've been a net seller Thursday morning and have been trading some index shorts.