S&P 500 Digests Payroll Data

S&P 500 Momentum Short-Lived

The S&P 500 gaped up at the open on Friday on the back of the jobs data.

However, the upward momentum was short-lived as institutions continued the recent trend of selling into retail momentum.

Within 20 minutes of the opening, the institutional investors and insiders stepped in, and the S&P 500 corrected sharply from 6530 to 6440 in the 90 minutes that followed. The index ended the day at 6481.  

The August Nonfarm Payroll was weaker than analyst expectations, and the June payroll number was revised to negative 13k.

That weakness has been a trend for 3 years, and the recent change in migration levels likely accelerates the trend.

The net negative migration levels in the U.S. are effectively a reduction in population growth, which reduces supply and demand, and makes any assessment of the relative weakness of the economy more challenging.

In response to the weakening labour market, the probability of a Fed rate cut in September now sits at 88% and there’s an increasing probability that the cut will be 50 bps.

While likely welcomed by retail investors (they have been fed the narrative that lower rates are good for the economy), the response from institutions and inside investors points to underlying weakness in the economy.

In part, that reflects the fact that historically, a market top or downturn follows a first Fed rate cut of 50 bps.

S&P 500 Key Levels

The S&P 500 opens in positive gamma today.

The gamma flip zone sits at 6265; the call resistance level is 6500, and the put support level is 6100. The S&P 500 needs to break and confirm above the 6540 level to maintain the current trend.

Inflation data this week will likely shape the direction of the market, and the balance of probability suggests that institutional and insider selling into retail buy-the-dip momentum will likely continue.

Expect chop consolidation this week.