S&P500 (SPX) Price Analysis – July 05, 2023

Daily Price Outlook

The S&P 500 index has experienced a continued decline during the Asian trading session, leading to worry among investors. However, the reason can be attributed to the rise in Treasury yields, which occurred after strong job market data was released just before the June monthly payroll report.

Investors are now fearing that the Federal Reserve might need to take additional measures to manage the economy and control inflation. These factors have resulted in market uncertainty and made investors uneasy.

Private Payrolls Show Strong Growth, Raising Expectations

In June, private payrolls showed significant growth, reaching 497,000 jobs, surpassing the previous month's figure of 267,000 and exceeding economists' expectations. This positive report has had a dominant impact, overshadowing other data such as higher-than-anticipated weekly initial jobless claims and a lower-than-expected number of job openings in May. Consequently, concerns have arisen that the Federal Reserve is highly likely to proceed with its guidance for two more interest rate hikes.

Thus, the positive report of significant private payroll growth in June, surpassing expectations, has impacted the S&P 500 price by causing concerns that the Federal Reserve may proceed with two more interest rate hikes. This has contributed to the downward trend in the S&P 500 and added to market uncertainty.

Market Worries Intensify with Weak Chinese Economic Data and Trade Conflict Risks

Adding to the market's worries, China has released a series of weak economic data, indicating concerns about a slowdown in the world's second-largest economy. Moreover, the risk of further escalation in the US-China trade conflict has dampened investor sentiment, resulting in a generally weaker tone across equity markets.

Amidst the concerns, the market reflects a 93% expectation of a rate hike in July, according to Investing.com's Fed Rate Monitor Tool. Anticipating additional tightening measures from the Federal Reserve, Treasury yields have surged, with the 2-year and 10-year yields surpassing 5% and 4%, respectively.

Hence, the release of weak economic data from China, combined with the risk of escalating US-China trade tensions, has negatively impacted investor sentiment and contributed to a generally weaker tone across equity markets, including the S&P 500.

The Firming Expectations of an Interest Rate Hike

The market's firming expectations of an interest rate hike by the Federal Reserve at its upcoming policy meeting on July 25-26 have significantly bolstered the US dollar. This belief was reinforced by the positive US ADP report, which indicated that private-sector employers added 497,000 jobs in June, surpassing the previous month's figure and exceeding the most optimistic estimates.

Therefore, the market's increasing expectations of an interest rate hike by the Federal Reserve, fueled by positive job growth reported in the US ADP report, have had a mixed impact on the S&P 500 price.

SPX Price Chart – Source: Tradingview

S&P500 (SPX) - Technical analysis

Taking a look at the technical analysis of the S&P 500, it opened with a significant downside gap and closed lower.

The $4400 level appears to be a crucial support, as indicated by the ascending triangle pattern observed on the daily and four-hour time frames.

This pattern suggests a strong possibility of a continued bullish trend. Furthermore, the presence of the 50-day exponential moving average acts as a support zone, reinforcing the positive sentiment in the S&P 500.

Today's forecast suggests that the price is likely to remain around the $4400 level, with a potential target of $4450.

A successful breakout above this level could expose the S&P 500 to the $4480 level. On the other hand, a breakdown below the $4400 level may lead to a decline towards $4360 or even lower towards the $4330 level.