US equities recover on Thursday and S&P 500 retests $4,900 as US NFP looms ahead

• US indexes broadly climbed on Thursday to pare back Fed declines.
• Stocks rebound as investor sentiment rebounds ahead of Friday’s US NFP.
• Markets are recovering from Wednesday’s downside after a hawkish Fed outing.

US equity indexes broadly climbed on Thursday, reclaiming ground lost after US Federal Reserve (Fed) Chairman Jerome Powell hit markets with a much more hawkish stance than many investors were prepared for.

Hopes of a March rate cut dwindled and investors piled into safe-haven assets after Fed chair Powell warned markets that the Fed needs to see inflation not only hit the US central bank’s key 2% target, but provide evidence that it will remain there after rate cuts do finally resume.

Markets tumbled and Thursday gave way to a risk appetite rebound as the US ISM Manufacturing Purchasing Managers’ Index (PMI) climbed to a three-and-a-half year high of 49.1 in January, climbing over the forecast decline to 47.0 from December’s 47.1, which saw a downside revision from 47.4.

US Initial Jobless Claims also rose to 224K for the week ended January 26 versus the market forecast of a slight downtick to 213K from the previous week’s 215K (revised from 214K). US Initial Jobless Claims rose over the four-week average of 207.75K, and the upswing in jobless numbers is once again giving rate cut betters a step up on hope, as the Fed also has a dual mandate to stabilize the US labor market. If the US labor market were to fully destabilize and kick off a steepening recession, the Fed would be forced to cut rates in an attempt to stoke the US domestic economy.

The key data print for this week will be Friday’s US Nonfarm Payrolls (NFP), and markets are looking for January’s headline labor print to come in at 180K versus December’s 216K. US Average Hourly Earnings in January are also expected to come in at 0.3% MoM compared to December’s 0.4%.

The Dow Jones Industrial Average (DJIA) climbed 0.97% to end Thursday up nearly 370 points at $38,519.84, while the NASDAQ Composite gained 197.63 points to end up 1.3% at $15,361.64. The Standard & Poor’s 500 (SP500) equity index also gained 60 points, adding 1.25% and wrapping up Thursday at $4,906.19.

SP500 technical outlook

The SP500 rallied hard on Thursday, recovering over a full percent and remaining buoyed above the 200-hour Simple Moving Average (SMA) near $4,840.00. Despite gains, the major equity index remains capped by the near-term swing high into $4,929.82.

The S&P remains firmly well-bid, pinned deep into bull country as the equity index looks for further topside near all-time record highs and trading well above long-term medians at the 200-day SMA near $4,450.00.

SP500 hourly chart

SP500 daily chart