Last week's U.S. labor market data left investors with mixed feelings. While the numbers look positive, the long-term implications may be unfavorable.
For those who missed it, the US added 272,000 new jobs in May, beating the 185,000 expected. However, unemployment also rose to 4%, above the 3.9% expected.
More job creation suggests that businesses are doing relatively well. However, the strength of the data increases the likelihood that the Fed will maintain a hawkish stance, delaying the long-awaited rate cut.
Despite this, markets did not plunge or reverse their uptrend. Although the indices declined Friday, they closed the week in positive territory.
In contrast, metals such as gold, silver, platinum, and copper recorded more significant declines. U.S. Treasury bond prices also fell. The digital asset market was also affected, with Bitcoin falling below $70,000. Overall, the appetite for risk assets has cooled somewhat.
Where are the markets headed?
The answer depends less on the FOMC's interest rate decision, for which no surprises are expected, and more on Jerome Powell's statements after the meeting.
The Fed Chairman will likely reiterate that future rate actions depend on incoming data. However, markets will react if he hints at his willingness to review monetary policy or suggests that rates should remain high for an extended period.
In the first case, probably with growth, and in the second, with a decline. Even if Powell disappoints the bulls by stating that the inflation target is still far off, it does not mean an imminent market collapse.
The market may remain irrational and continue to rise regardless for some time to come. Recently, all the dips have been quickly bought, taking us back near record levels in the S&P 500 and, of course, the Nasdaq.
What do analysts say?
A recent survey indicates that 41% of economists expect the Fed's “dot plot” to show two rate cuts, while another 41% expect forecasts to show only one or no cuts due to recent data.
If policymakers raise their inflation estimates for 2024, the first cut could come in September. Overall, there are no expectations of an imminent rate cut.
As for how investors should act amid uncertainty, it is recommended to closely follow macroeconomic indicators, as they will influence the Fed's decisions.
In addition, technical analysis, including support and resistance levels and trading volume activity, should be taken into account. It is not a lifesaver, but it serves as a guide.