S&P 500 Attempts to Resume Long-Term Bull Trend Ahead of Apple Earnings, Key Data

Equity index futures bounced back in the first half of Thursday’s session, after closing well off their highs on Wednesday in response to the latest US monetary policy decision and Powell’s remarks at the FOMC press conference.

It remains to be seen whether the markets will find comfort from the Fed’s indication of no imminent interest rate hikes, and Apple's (NASDAQ:AAPL) upcoming earnings results before the focus turns to the key US monthly jobs report and the ISM services PMI at the end of the week.

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So, before discussing these macro factors impacting the markets in greater detail, let’s first look at the chart of the S&P 500 to remind ourselves of the direction of the trend and what to expect from a technical point of view.

SPY technical analysis and trade ideas

The market rallied then slumped during the FOMC press conference, causing the major indexes to close the session with doji-like candles on their daily charts. The doji candles point to indecision, which is hardly surprising given the mixed messages that Powell delivered – quashing expectations of another rate hike, yet also suggesting that they will be in no rush to cut rates.

Anyway, all the major US indexes remained below their respective 21-day exponential moving averages, objectively suggesting that the bulls are not out of the woods yet. That may change soon, but until we see a confirmed signal to suggest the correction phase is over, the bulls must proceed with extra care.

While index futures have bounced back a little, it remains to be seen whether the recovery will hold, given the ongoing macro concerns. The SPY, which tracks the performance of the underlying S&P 500, found resistance right where it should have: in the lower end of the resistance range between 507.25 to 510.00.

As you can see on the chart, this is where it had turned lower from earlier in the week, having previously served as support. Additionally, this is where the 21-day exponential average meets the resistance trend of the falling wedge pattern. As things stand, a break above the 507.25 - 510.00 resistance area is needed to signal a resumption of the long-term bullish trend. While we remain below that area, the short-term path of least resistance remains to the downside.

For now, key short-term support at 500.00 has held. In the event the index goes on to break and hold below this level, then a potential drop to the support trend of the wedge pattern could be on the cards. The SPY may remain inside its consolidation pattern for several weeks, or even drop out of it, given that we have just entered the month of May, which traditionally has not been a great month for the markets.

Thus, I wouldn’t rule out the potential for a deeper correction, perhaps to the long-term support area in the range between 477.55 to 480.00. This is where the index had formed its highs in the last two years.

Market interprets Fed as being slightly less hawkish than expected

Following the Fed’s meeting, investors are left scratching their heads. Powell quashed expectations of a rate hike this year, but he also indicated that the central bank was in no rush to start cutting interest rates – something that was widely expected anyway.

Still, the fact that the market is now pricing in 35 basis points of cuts this year, which is slightly higher than before the meeting, suggests that investors have interpreted the lack of change in forward guidance as a lean towards a more dovish stance from the Fed.

However, ongoing concerns about persistent inflationary pressures that have been reflected in various economic indicators remain. Those concerns could intensify if incoming data remains strong, especially wages and inflation.

What will traders be watching for the rest of the week?

Further insights into inflationary pressures and the state of the US economy will be gleaned from the April non-farm payrolls data scheduled for release on Friday. Analysts expect the unemployment rate to have remained unchanged at 3.8% with a headline non-farm payrolls gain of 238,000 and a 0.3% rise in average hourly earnings. If correct, that would suggest hiring remains too hot for the Fed to consider rate cuts in the coming months.

Recent robust growth data and persistently high inflation figures have tempered expectations of rate cuts in 2024. But while hard data has been strong, we have seen soft survey-based figures, pointing to weakness. It is also possible that the extent of hawkish repricing may already be priced in. Therefore, any signs of weakness in US employment or wages data could alleviate concerns about the Fed's capacity to lower rates, leading to a potential rebound in equity markets

Meanwhile, the ISM services PMI will be released a couple of hours after the NFP data. Last week, the S&P Global PMI data showed US business activity increased at a sharply slower pace in April amid signs of weaker demand. Its services PMI showed the weakest reading in 5 months as orders fell and companies responded by scaling back employment. If this is anything to go by then the closely watched ISM survey could disappoint expectations and potentially lead to some dovish repricing of Fed interest rates.

Coming up: Apple earnings

Meanwhile, today’s primary focus will be on Apple’s earnings after the markets close. The tech giant is expected to report its biggest quarterly revenue decline in more than a year, with sales of the iPhone seen falling more than 10% in Q1 thanks to strong competition in China.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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