Key Points
- US Non-farm Payrolls (NFP) missed expectations badly to the downside. Unemployment rose to 4.3%.
- A 75% chance of a ½ point cut is now being assigned to the September Fed meeting.
- The NASDAQ is in a freefall and testing macro support around 18,400.
Market Overview
August is two days old — it’s already been a brutal month for the NASDAQ. At press time, the NASDAQ is off more than 2.5% on the day and 5.20% for August. The downturn comes amid a shift in Fed policy from restrictive to accommodative. A bearish bias is warranted as the NQ searches for a bottom.
NFP Misses Expectations
US NFP for July has missed expectations badly to the downside. Consensus estimates suggested a jobs build of 176,000; the number came in at 114,000. Although technically positive, the final NFP tally sent the markets reeling.
Perhaps the bigger headline was the US Unemployment Rate. Unemployment spiked 0.2%, from 4.1% to 4.3%. 4.0% is the Fed’s benchmark rate for Unemployment; anything over that threshold and rate cuts become more likely. It now appears that J. Powell and the FOMC will be going to work in September.
The devil is always in the details. The last paragraph of today’s NFP report reinforces that old cliche. Both the May and June numbers were revised down, totaling 29,000 jobs. This is the second NFP in a row where major revisions were made to previous reports.
Add it all up: the US employment situation is far worse than anyone thought.
Fed Policy
The dreadful NFP report has been a huge drag on today’s markets. Why? Uncertainty. Now, the markets are evaluating the odds of a full-blown recession developing in late 2024 and early 2025. This assertion has greatly impacted interest rate expectations.
As of this writing, the CME FedWatch Index is assigning a 75% chance of a ½ point rate cut in September. This is a major shift in probabilities and one that has shocked the markets.
For the NASDAQ, the idea of cheaper money should be a bullish market driver. That concept has yet to materialize as traders and investors are worried about a broader recession. Wall Street’s fear gauge, the CBOE Volatility Index (VIX), has spiked 35% today. Something is definitely up, and it isn’t the NASDAQ!
Technical Outlook
Any time the markets make big moves, it’s a good time to step back and view the action from 10,000 feet. The monthly chart for the NASDAQ (US100 CFD) gives us a good look at where things stand. The long-term trend is up, but prices are nearly 11% off all-time highs.
April through July was a bullish period for the NASDAQ. Now, the 62% Fibonacci retracement of this range (18,416.9) is in play. This is a huge level for the US100; if it fails as downside support, a significant bearish extension is likely. Should this scenario unfold, 17,780 is the next viable downside target.
It’s been a huge week on the markets, with the Fed and NFP headlining the action. Next week will be a much quieter affair. Are NASDAQ bidders going to buy the latest dip? We’ll soon find out.
Risk Disclosure: The information provided in this article is not intended to give financial advice, recommend investments, guarantee profits, or shield you from losses. Our content is only for informational purposes and to help you understand the risks and complexity of these markets by providing objective analysis. Before trading, carefully consider your experience, financial goals, and risk tolerance. Trading involves significant potential for financial loss and isn't suitable for everyone.
