Nasdaq 100, Dow Jones, S&P 500 News: Bearish Reaction to Labor Cost Rise Ahead of Fed

Mid-Session Overview

Wall Street’s main indexes declined on Tuesday, influenced by unexpectedly high labor cost data and cautious sentiment ahead of the Federal Reserve’s upcoming interest rate decision. The S&P 500, Dow Jones Industrial Average, and Nasdaq all trended downward, facing their first monthly loss after a half-year of gains.

At 16:00 GMT, the Dow Jones Industrial Average is trading 38055.04, down 331.05 or -0.86%. The S&P 500 Index is at 5077.92, down 38.25 or -0.75% and the Nasdaq-100 Index is trading 15839.74, down 143.34 or -0.90%.

U.S. Labor Costs and Inflation Concerns

In the first quarter, U.S. labor costs rose by 1.2%, surpassing the expected 1% increase. This surge suggests that inflationary pressures remain more persistent than anticipated, complicating the Federal Reserve’s interest rate strategy. The Employment Cost Index’s rise, primarily driven by increased wages and benefits, signals ongoing challenges in controlling inflation. Consequently, Treasury yields saw a significant increase, with the 2-year yield breaching 5%.

Market Responses and Economic Indicators

The revelation of these higher labor costs has led to a recalibration of expectations for Federal Reserve actions. Market sentiment now leans towards minimal rate cuts in 2024, as traders and analysts interpret the data as a deterrent against any swift monetary easing by the Fed. This stance is further supported by the slight downturn in consumer confidence in April, which reached its lowest in over 18 months, reflecting broader economic uncertainties.

Earnings Impact and Sector Performance

Amid these macroeconomic concerns, corporate earnings also influenced market movements. GE HealthCare saw a significant decline after missing revenue forecasts, while 3M reported better-than-expected profits, offering some positive news. The earnings season continues to unveil mixed results, with major companies like McDonald’s and PayPal adjusting their financial outlooks based on current market conditions.

Short-term Market Outlook

As the Federal Reserve’s meeting concludes, all eyes will be on the central bank’s rate decision and subsequent commentary from Fed Chair Jerome Powell. With the backdrop of stubborn inflation and strategic corporate adjustments, the market anticipates potentially hawkish tones from the Fed. This week’s continuation of the earnings season and upcoming economic reports will likely further shape investor strategies and market sentiment.

Technical Analysis

E-mini S&P 500 Index futures are sharply lower at the mid-session on Tuesday after reaching a three week high at 5154.25 the previous session. This figure fell slightly below the flat-lining 50-day moving average at 5184.56, which is resistance. Additionally, the 50-day MA is controlling the intermediate trend and is likely to act like a pivot.

The short-term trend is pointing lower. Its range is 4963.50 to 5154.25. If the selling pressure persists then look for a break into it 50% level at 5059.00.