• US500 index trading around never-seen-before 5360 mark
  • NAS 100 index breached 19,000 mark for first time ever
  • AI-mania is still alive and kicking
  • Friday’s US jobs report could trigger new record highs or pullback

    • US stock indices had a stellar mid-week rally, reaching fresh all-time peaks.The US500 index climbed above 5360, bringing its year-to-date gains past 12%.Also, the tech-heavy NAS100 index crossed above the 19k mark for the first time in its history, with year-to-date gains now exceeding 13%.NOTE: Stock indices measure the overall performance of a collection of stocks.US500 tracks the S&P 500 index, which measures 500 industry-leading companies on the US stock market.NAS100 tracks the Nasdaq 100 index, which measures 100 of the largest and most active non-financial stocks (think tech stocks).
     Why did US stocks soar?Short answer: AI.The frenzy over all things related to artificial intelligence is showing no signs of abating.Nvidia, the poster child for the ongoing AI-mania, is now valued at US$ 3.012 trillion – that’s US$ 9 billion MORE than Apple’s total market cap!Besides Nvidia, all of the other so-called “Magnificent Seven” stocks (Microsoft, Apple, Meta, Alphabet, Amazon, Tesla) also saw gains yesterday (Wednesday, June 5th).

    Given their outsized weightings that Big Tech stocks have on US stock indices, their gains have in turn pushed the US500 and NAS100 indices to all-time highs!

    Beware technical pullback
    However, in the charts above, both US stock indices have reached their respective upper Bollinger bands.Furthermore, the 14-day relative strength index (RSI) for both indices is flirting with the 70 number which marks “overbought” conditions.Hence, further gains which bring either the US500 and NAS100 above their respective upper Bollinger bands, or a sharp spike for the 14-day RSIs past 70, could warrant a technical pullback.
     What’s next for US stocks?Tomorrow (Friday, June 7th) brings the highly anticipated monthly US nonfarm payrolls (NFP) report, which is typically published on the first Friday of every month.This is a key economic data that provides a major clue as to what the Federal Reserve – the most important central bank in the world – could do next with US interest rates.

  • A weaker-than-expected US jobs report may prompt the Fed to cut interest rates sooner than later.
     
  • However, stronger-than-expected jobs data may force the Fed to keep its benchmark rates at their current peak (5.25% – 5.5%) for longer.

    • Note that US stock markets tend to go up when markets expect US interest rates to go down, and vice versa.

    Economists currently predict that:

  • Headline NFP number: the US jobs market added 185,000 new jobs last month (May 2024)
  • Unemployment rate remained at 3.9%, just as it was in April
  • Average hourly earnings grew by 0.3% in May 2024 compared to April 2024), slightly higher than April’s 0.2% month-on-month growth
  • Average hourly earnings grew by 3.9% in May 2024 compared to May 2023, matching April’s year-on-year figure
     

    • How has US500 / NAS 100 reacted to past NFP data?

  • S&P 500: In the 6 hours after these monthly NFP releases over the past year, the S&P 500 has risen by an average of 0.35%.
    This stock index has also risen by as much as 1.15% or fallen as much as 0.4%.
  • Nasdaq 100: In the 6 hours after these monthly NFP releases over the past year, the Nasdaq 100 has risen by an average of 0.37%.
    This stock index has also risen by as much as 1.5% or fallen as much as 0.74%.
     

    • Potential Scenarios for US stock markets

  • US500 / NAS100 could hit new record highs if Friday’s NFP report shows signs of a weakening US jobs market (i.e. higher-than-3.9% unemployment rate, lower-than-185k headline NFP number, lower-than-expected wage growth)
  • US500 could be forced back down to 5300 / NAS100 could be forced back below 19k if Friday’s NFP report shows signs of a still-resilient US jobs market (i.e. lower-than-3.9% unemployment rate, higher-than-185k headline NFP number, higher-than-expected wage growth)

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