U.S. markets rally midweek. Following modest declines the past 4 weeks, U.S. equities are poised to end this week sharply higher with the S&P 500 Index gaining 3.6% in the past 3 trading days alone. On a technical basis, we are watching whether the index can eclipse 2880, which marked the closing highs from mid-May before the most recent leg lower. On the downside, tactical support can be found at the 2742 level, which has held on a closing basis since early February.
Fed + trade = rally. The S&P 500, up 3.2% for the week as of Thursday’s close, is looking to close out a positive week today after four consecutive weeks of losses. The Federal Reserve (Fed) got the rally going on Tuesday following comments from Chair Jerome Powell at a policy conference that more explicitly acknowledged the possibility that the Fed may need to lower rates. While the Fed has been the main driver, progress on trade negotiations with Mexico has helped sustain the rally.
Signs of progress on trade with Mexico. An initial 5% tax on U.S. companies for the goods they import from Mexico may still go into effect Monday, but there have been clear signs of progress towards an eventual resolution. The Trump administration has threatened raising tariffs in 5% increments until Mexico shows progress helping to manage the flow of immigrants on the U.S. border. The sides are talking, with Mexico showing willingness to implement some additional steps. We believe an eventual resolution is likely, probably as early as this summer.
Nonfarm payrolls miss estimates. U.S. hiring slowed in May, hinting that renewed trade tensions and a maturing business cycle could be leading to slower job creation. Nonfarm payrolls rose 75K in the month, below consensus estimates for a 175K increase. Job gains for March and April were also revised down by 75K. We’ll dig into the May jobs report’s details in today’s LPL Research blog post.
- Nonfarm Payrolls Report (May)
- Unemployment Rate (May)
- Average Hourly Earnings (YoY May)
- Japan Leading Index (Preliminary Apr)
- Germany Industrial Production (Apr)
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