S&P 500 Hits New Record After Strong NFPs
Stock markets closed higher for the second week in a row, and the S&P 500 managed to hit new all-time highs in the process. The US benchmark stock index closed above 1600 for the first time in history after strong employment data signalled a stable recovery and investor optimism was supported by central bank commentaries. Monthly Non Farm Payrolls was the big data release for the week, and came in much higher than analysts had expected in consensus surveys. The final result for the month of April came in at an addition of 165,000 jobs, which was better than the estimates of 145,000 and much higher than the whisper estimates of 125,000.
These whisper numbers came as the result came after the monthly ADP report was lower than market expectations and since this is usually used as a precursor estimate for the NFP number, market analysts started to price in the possibility of a lower NFP report as well. The positive surprise took caught investors off guard, so the upside reaction in both stock markets and risk currencies was stronger than what might otherwise be expected. In other news, the European Central Bank reduced interest rates to a new record low at 0.5% in an effort to calm market volatility and bring improvements to market sentiment. Regional stock markets were also higher on the news as there is an increased expectation that the ECB will maintain an accommodative stance to support the economy. These pledges will be critical for stock markets around the world as it will be key for judging sentiment and the ability of investors to take on additional risk in equities.
The S&P 500 saw some significant impulsive breaks and rallies above key psychological levels last week, with prices rising to new all time highs at 1610. The high for the week saw only minimal pullbacks, so there is some scope for additional upside as we start trading on Monday. On the hourlies, prices are starting to diverge significantly from 100 and 200 period moving average, so there is some scope for a test of support now seen at 1595.
The FTSE 100 tracked the S&P 500 higher and the FTSE has now broken out of its medium term descending triangle. This is a highly bullish event for the index and will place emphasis on the topside going forward. The index is now a buy on dips, with the first area of support now seen at 6440.
The DAX traded higher each day of the week and closed Friday at new weekly highs in the 8120 region. This area now marks critical short term resistance but there is no sign that the uptrend has ended, and this favors buy on dips strategies. To the downside, support is now seen at 8190.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.