S&P500 and Nasdaq 100: Payrolls Will Decide if Waller’s Rally Gets Follow-Through

Futures Are Quiet Ahead of the Number That Decides the Week

U.S. stock futures are mixed Friday morning ahead of August’s nonfarm payrolls report. The Nasdaq-100 is the only major futures contract higher, up 0.48% at 11:30 GMT. S&P 500 futures are up 0.05%. Dow futures are down 0.11%.

Thursday’s rally was the biggest session since early August. The Dow gained 1.2%. The S&P 500 rose more than 1%. The Nasdaq Composite added 1.4% after Waller challenged the rate-hike trade that had been running since Jackson Hole. Friday morning the market is waiting to find out if it gets to keep any of it.

Waller and Warsh Gave the Market Opposite Reads in the Same Week

Warsh said at Jackson Hole last week that the Fed could have more work to do if inflation did not move toward target. The market traded that warning for four straight sessions. Yields climbed to multiyear highs. The dollar rallied. Growth stocks sold off.

Waller said Thursday that three-month inflation has fallen from 4.76% in February and the Committee can afford to wait one meeting. September hike odds dropped to 50.3% from 63% the day before. The 10-year fell five basis points to 4.74%. The yen ripped more than 1% against the dollar.

Economists expect 53,000 nonfarm payrolls added in August and a 4.1% unemployment rate. July showed a loss of 23,000 jobs. June and July together produced a net loss of 3,000. Citigroup’s forecast is closer to 20,000. Initial claims rose only 2,000 last week to 206,000. Continuing claims increased to 1.78 million. Challenger reported announced layoffs at their slowest pace in four years. Hiring has slowed. Firing has not.

Brent Above $95 Is Still Sitting on the Inflation Side

The payrolls number is the immediate event. Crude above $95 Brent is the longer problem. The latest U.S. attack on Iran and continued disruption around the Strait of Hormuz have kept oil near six-week highs. Trump said the fighting would not last too long. The price has not cooperated with that language.

Waller said he sees encouraging progress in core inflation and would hold if the next reports cooperate. Brent above $95 and a widening Gulf conflict are not the kind of cooperation he described. A soft payrolls number can take yields lower for a session. Crude at these levels keeps the inflation question open for the Fed regardless of what the labor market does Friday morning.

Lululemon Broke and Software Split After the Close

Lululemon fell nearly 18% in extended trading Thursday. Revenue dropped 4%. Comparable sales declined 9%. The company cut its full-year revenue outlook to $10.35 billion to $10.5 billion from $11 billion to $11.15 billion. It expects third-quarter revenue down roughly 10% to 11% from a year ago. The premium consumer is not giving companies room for a weak quarter.

DocuSign gained more than 4% after beating on earnings and revenue and raising the high end of its full-year outlook. Samsara surged 17% on a stronger full-year forecast. Planet Labs gained 4% on earnings and revenue beats. Asana fell about 11% on weak current-quarter guidance. Guidewire dropped 15% on a soft revenue forecast. UiPath lost 9% on guidance that did not give buyers a reason to stay.

Strong results with stronger guidance still get rewarded in software. Anything short of that gets sold.

Daily September E-mini S&P 500 Index Futures Technical Analysis

September E-mini S&P 500 Index futures are edging higher early Friday as traders try to build on the move to the strong side of the short-term 50% level at 7,748.25.

A sustained move over 7,748.25 could produce enough upside momentum to overtake the last swing top at 7,782.50. A successful breakout over that level will change the minor trend to up and could trigger an acceleration into the record high at 7,838.50.

Failure to sustain the rally above 7,782.50 will be a sign of weakness and make the futures contract vulnerable to a pullback to at least 7,691.50. Below that minor pivot are the 50-day moving average at 7,633.22, a swing bottom at 7,618.50 and an intermediate 50% level at 7,581.25.

The pivot at 7,748.25 is the level controlling the direction today. Holding above it keeps the record high in play. Falling below it puts the 50-day moving average back on the radar. Monday is a holiday, so the market may not show its full reaction to the nonfarm payrolls report until early next week. Thin-volume sessions also make breakouts harder to sustain.

What to Watch

Friday’s payrolls number runs the opening trade. Economists expect 53,000 jobs and 4.1% unemployment. Waller and Warsh gave the market opposite reads in the same week. The payrolls number decides which voice traders carry into next week’s inflation data. Brent above $95 keeps the inflation side alive regardless of the labor print. Monday is a holiday. The full reaction to the number may not show until next week.

The near-term read stays bullish while S&P 500 futures hold above the pivot at 7,748.25. The swing top at 7,782.50 is the level that changes the minor trend to up and the record high at 7,838.50 sits above it. Payrolls and thin pre-holiday volume still leave the move vulnerable to a quick reversal. The 50-day at 7,633.22 is underneath if sellers come back after the number.

More Information in our Economic Calendar.