Wall Street: US stocks soar to records on tech earnings, job surge

After a brief FOMC-inspired volatility episode mid-week, regular service resumed as US stock markets finished last week at fresh record highs, following strong earnings reports from Mega Tech (Meta +20.32%) and a robust jobs report. For the week, the Dow Jones added 545 points (+1.43%), the S&P 500 added 1.38% and the Nasdaq gained 1.27%.

Non-farm payrolls on Friday night surprised to the upside as the US economy added 353k jobs in January, smashing expectations for a gain of 180k. The number was accompanied by cumulative upward revisions over the prior two months of 126k, as the unemployment rate held steady at 3.7%, slightly below the 3.8% forecast. The US rates market is pricing in just a 20% chance of a rate cut in March, down from a near 80% probability in early January.

The US economic calendar is much lighter this week, following a blockbuster couple of weeks. ISM services PMI will be of interest, as well as updated thoughts from Fed speakers, including Bostic, Bowman, and Barkin. US Q4 earnings season continues this week with reports scheduled from companies including McDonalds, Caterpillar, Alibaba, Walt Disney, Uber, Paypal and PepsiCo.

As we push deeper into February, it is worth remembering that February is traditionally one of the more challenging months of the year for US equity markets. The slippery slope usually starts in mid-February and extends into the first week of March.

S&P 500 Seasonality Index

What is expected from the ISM Services PMI (Tuesday, February 6th at 2 am)

Last week, the ISM manufacturing PMI beat expectations, increasing by two points to 49.1, the highest level since 2022. The increase was driven by new orders and production, which entered expansionary territory, and supported the idea of a turn higher in manufacturing after fifteen months in contractionary territory.

This week, attention turns to the ISM service PMI (Tuesday, February 6th at 2 am). It is expected to print at 51.7, rebounding from 50.4 in December, representing continued expansion in the services sector.

ISM Service PMI chart

S&P 500 technical analysis

After a strong rally for the S&P 500 into the end of 2023, we started the new year in a more cautious/neutral frame of mind.

We remain of the view that the S&P 500 is in the final stages (Wave V) of its rally from the October 2023 low, and note again, the bearish RSI divergence on the daily chart. Bearish RSI divergence occurs when prices make new highs; but the RSI fails to make a new high.

Furthermore, the S&P 500 cash is closing in on the psychologically important 5000 resistance level, which is being reinforced by trendline resistance at 5020, drawn from the December 1st 4100 high, viewed on the chart below.

As such, we remain patient, waiting for a pullback to develop in the coming weeks in the order of 5-8%.

S&P 500 daily chart

Nasdaq technical analysis

After a strong rally for the Nasdaq into the end of 2023, we started the new year in a more cautious/neutral frame of mind.

We remain of the view that the Nasdaq is in the final stages (Wave V) of its rally from the October 2023 low. However, a break/ daily close below uptrend support at 17,100, coming from the October lows, is needed to suggest that the Nasdaq has topped and that a deeper retracement towards support at 16,200/16,000 is underway. Until then, allow for the Nasdaq to extend its rally towards 18,000.

Nasdaq daily chart

• _{Source: TradingView. The figures stated are as of 5 February 2024. 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.}