Index Market Outlook: The S&P 500 Melt-Up Will Continue

Man What A Jobs Number!

The NFP figure was released today and boy was it ever a big one. The headline figure came in at 4.8 million and well above the consensus figure. When you add in the revisions to previous months the figure is closer to 4.9 million and just shy of the 5 million mark. Add in the fact that unemployment is falling, labor market participants are coming back, and wage growth is stabilizing and it looks a lot like the U.S. economy is on better footing than anyone could have hoped. What this means for traders is the market melt up will continue.

A market melt-up? What? In case you haven’t heard, a market melt-up is when investors are faced with a rapidly improving outlook. In this case, sentiment was at an historic low because of the pandemic and it’s now spring back. What makes this melt-up so strong is the fact that data continues to come in better than expected even as consensus estimates are rising. That’s one resilient economy. And we can continue to expect the data to be as strong. Some states have begun to slowdown on reopening or even roll-back their reopenings but that won’t stop the businesses that are already thriving.

What this means for the indices is a potential for volatility tied to sector rotation and risk. The risk is in the pandemic primarily but even that is just another brick in the wall of worry right now. The sector rotation is out of stocks with over-exposure to pandemically stunted markets (airlines, leisure, brick & mortar) and into those positioned to come out of the pandemic stronger than they were before (staples, national brands, tech). Regarding the S&P 500, the price action post-NFP release was a bit stunted too but bullish nonetheless.

The candle is only a small doji in late afternoon trading but it is setting a new high, extending a bounced from strong support, and is backed up by the indicators. The only negative I see is that MACD hasn’t quite formed a bullish crossover yet but it will, soon I think very soon. Assuming price action does continue upward the next targets for resistance are near the recent high, just above 3,200, and the all-time high set just prior to the COVID-19 panic bear market. If the market can make a break above the all-time high a much bigger move is probably in store, possibly as much as another 600 to 1000 S&P 500 points.