Stocks are likely to open lower following jobs data. Will they reach new lows?
Wednesday’s trading session saw little change in the stock market, with the S&P 500 closing 0.16% higher, trading sideways after Tuesday’s 1.1% decline. This morning, the market is expected to open 0.7% lower after Thursday’s pause and the release of monthly jobs data. The Nonfarm Payrolls number came in significantly above expectations, at +256,000 month-over-month.
On December 9, I noted that “the S&P 500 index reached a new record high of 6,099.97 on Friday. The key question remains whether the uptrend will continue, despite signs of short-term overbought conditions.” The sharp decline following the Fed’s release confirmed that the market was forming a topping pattern, as fluctuations led to a break lower.
Investor sentiment has slightly worsened again, as shown by the Wednesday’s AAII Investor Sentiment Survey, which reported that 34.7% of individual investors are bullish, while 37.4% of them are bearish.
The S&P 500 index remains within an over month-long consolidation, as we can see on the daily chart.
Nasdaq 100 - Hovering Above 21,000
The Nasdaq 100 index gained 0.04% on Wednesday, moving sideways after Tuesday’s 1.8% sell-off. On Wednesday, NVDA stock sharply reversed its initial rally, which had pushed it to a new record high. This morning, the Nasdaq 100 is set to open 0.9% lower.
Further fluctuations are likely following November - December rally.
VIX Remains Below 20
On December 18, the VIX index, a measure of market volatility, surged to 28.32, its highest level since early August. Then, the VIX dropped below 15 in late December. On Wednesday, it continued to fluctuate below the 20 level, signalling moderate fear in the market.
Historically, a dropping VIX indicates less fear in the market, and rising VIX accompanies stock market downturns. However, the lower the VIX, the higher the probability of the market’s downward reversal. Conversely, the higher the VIX, the higher the probability of the market’s upward reversal.
S&P 500 Futures Contract: Reacting Negatively to Jobs Data
This morning, the S&P 500 futures contract is once again testing local support levels around 5,880. On the other hand, resistance is now at 5,920-5,950, marked by recent fluctuations.
The market seems poised for further consolidation.
Conclusion
Friday’s trading session is likely to open lower as investors react to strong monthly jobs data. The market faces more uncertainty ahead of the upcoming quarterly earnings season, economic data, and Donald Trump’s inauguration on January 20.
On Monday, in my Stock Price Forecast for January 2025, I wrote that “the stock market is poised for continued fluctuations following the post-election rally in November. Although the S&P 500 dipped by 2.5% last month, this appears to be just a correction of November’s gains.
Will the market resume its uptrend and reach new record highs? This appears likely at some point, driven by growing optimism ahead of Trump’s upcoming inauguration on January 20. However, rallies may provide selling opportunities, leading to a medium-term consolidation phase.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 is likely to re-test local lows following jobs data.
- The stock market is still seeing increased volatility following the post-election rally.
- In my opinion, the short-term outlook is neutral.
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Paul Rejczak,
Stock Trading Strategist