Key Levels & Fed Expectations – Weekly Market Outlook

The market never could get the rebound rally from two weeks ago restarted last week. In fact, between Tuesday’s near -3% stumble and Friday’s 1.5% lull, the S&P 500 (SPX) (SPY) finished the week on the defensive more so than the offensive. The bulls still have their work cut out for them. And yet…

While stocks are facing the wrong direction, stocks are still on the fence, and the right nudge – whether it be a recovery in China or some encouraging interest rate news from the Fed – stocks are still within reach of a renewed rally. The only impasse with a rebound now rather than later is, it will make the typical Q4 rally less impressive than usual.

We’ll explore all the technicals below, following a closer look at this week’s major economic news… namely, last month’s employment figures.

Economic Data

Last week was loaded with data, though the only economic news that really mattered was Friday’s employment data for August. The 173,000 new jobs added last month missed estimates for 217,000, but it was still enough to drive the unemployment rate down from 5.3% to 5.1%.

Unemployment Rate and Job-Growth Chart

Source: Thomas Reuters

The slow and steady growth of employment – and equally steady decline of unemployment – is undeniable. The unemployment rate now stands at the lowest level we’ve seen in seven years, and while the improvement hasn’t always been the highest-quality progress we would have preferred, it never is. This is a pretty solid situation. If companies aren’t doing well, it’s not because enough consumers just aren’t capable of spending.

The flipside: This level of employment strength makes it easier for the Federal Reserve to justify a rate hike this month, after it looked like one had been staved off. How the market behaves between now and then may also play a role in that decision. It’s unlikely Janet Yellen will want to put a rate-hike program in place while the market is imploding.