Weekly Focus: the S&P 500 is Rushing towards 4500 Highs

The last week ended with fireworks of positive. The S&P 500 index extended its upside to 5.9%, the best weekly result of 2023. U.S. 10-year Treasuries yields fell to 4,48%, a six weeks low, while the U.S. Dollar lost around 1.5%.

U.S. labour market data for October came in weaker than expected. Nonfarm Payrolls were reported at 150,000 missing consensus at 180,000. The unemployment edged up to 3.9% from 3.8% a month ago, beating consensus. Hourly earnings rose only by 0.2% MoM vs 0.3% expected. Moreover, strong September Nonfarm Payrolls data was revised to 297,000 from the 336,000 initially released. These figures justified dovish rhetoric of the Federal Reserve’s (Fed) Chair Jerome Powell last Wednesday. He probably was already familiar with the figures. So he had an understanding that cooling labour market would do the job for the Fed this time. However, geopolitical escalation may boost energy prices up, which could strongly contribute to inflation. Thus, Powell let the Fed an option to increase interest rates if needed.

Meanwhile, the situation in the Middle East has not changed much. Lebanon has limited itself to new verbal threats against Israel, but stood away from any military actions. Brent crude prices dropped to the support at $83.00-85.00 per barrel. If the conflict would follow this way, the S&P 500 index may be pushed up to 4,500 points this week. Jerome Powell is likely to reiterate his dovish rhetoric during his testament to the Congress. This may lead to a further weakening of the Dollar towards 1.08500-1.09500 against the Euro.

There are no other major events scheduled this week investors have to react to. Lack of the escalation in the Middle East conflict would lead to a rather calm positive week. Some elevated volatility could be expected in the second half of the week.

Technically, the S&P 500 index downside formation with a primary target at 4100-4150 points and extreme targets at 3700-3800 points has changed to the upside. New upside targets are seen at 4450-45500 points. Moreover, the index has opened a way to a rapid rise towards 4500-4600 points by next Tuesday. 

Oil market has become the most important indicator of the situation in the Middle East. Lack of the escalation eventually decreases war premium in prices. Brent crude prices dropped to the support at $83.00-85.00 per barrel. If prices will continue to fall, they may dive even further to $75.00 per barrel. In case of a rebound they are likely to recover to $90.00-94.00 per barrel.

Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce that have already been met. Prices unsuccessfully tested the resistance at $2000-2020 per ounce, and they are rolling back now. Without an escalation of the Middle-East conflict, they are likely to go down towards $1910-1930.

The Greenback took a pause. Strong decline of the last week needs the oversold tension to be removed first for the Dollar to continue weakening. The Dollar is seen to continue down towards 1.08500-1.09500 against the Euro. A huge wave of its strengthening to the parity with the single currency may follow.