Morning Notes — Near-Term SPX

Today’s encouraging inflation data interrupts two weeks of catalyst-free trend continuation that resulted in the S&P 500 (SPX) reaching short-term oversold territory. The lift from oversold levels will face almost immediate technical resistance near 3900. From a purely technical perspective, the SPX reached our Q4 rally objective near 4100, broke below support at 3900 and likely to retest the lows near 3550. At this stage, breaking the pattern likely requires a Fed pivot as policy remains hawkish amid deteriorating economic conditions. Importantly, bond yields tend to peak 1-3 months before a Fed pivot. In current terms, a peak in 10-year yields means something below 3.40%.  

More: Aggregate US data has mixed implications for Fed policy. December ISM manufacturing was mostly inline with expectations, but a much softer prices paid component highlights an ongoing disinflationary trend in the series. This is the lowest prices paid reading since April 2020 and the longest stretch of price declines in 47 years. However, today’s labor market indicators were more positive than expected with a slight upside surprise in the ISM employment component and stronger than expected November JOLTS job openings.

Remaining labor market data this week include weekly jobless claims and ADP payrolls tomorrow, followed by the December Jobs Report on Friday. December FOMC meeting minutes will be released later today and expected to be hawkish.