The Fed's Resolve Could Soon Start to Crack By Larry Benedict, Editor, The S&P Trader Hey traders, Larry here with your weekly update. We’ve been discussing the growing disparity between the market’s expectations about rate cuts and the positive economic data that keeps landing in front of the Fed. In your update last week, I wrote about the manufacturing sector expansion (for the first time in 16 months). That followed the bounce back in durable goods orders the week before. Since then, the services purchasing managers’ index (PMI) has continued to expand, albeit less than market forecasts. And at the last meeting, we saw the Fed up its GDP forecasts through 2026. Yet the top number I’ve been watching is jobs. That’s what the Fed is watching too. A month or so ago, the Fed pivoted its focus away from inflation to the jobs market. They reason that inflation (by their estimates) is still expected to land at their 2% target. So the health of the jobs market could now dictate a big part of interest rate policy. In particular, the unemployment rate will play a role. A pronounced uptick in unemployment would likely expedite rate cuts. But in a continuation of this year’s theme, the nonfarm payrolls (NFP) data once again came in higher than forecasts on Friday. And it wasn’t just a small beat either. March’s 303,000 new jobs came in well over the 200,000 forecasts. This was its highest level in 10 months. One of the standout figures was leisure and hospitality’s 49,000 new jobs. That put this sector back to pre-pandemic levels. And the unemployment rate also fell to 3.8%. Despite the Fed’s assurances about three cuts in the second half of 2024, those strong jobs numbers will add pressure to the Fed’s decision. The market has already started to bet on a smaller number of cuts before the end of the year. It’s also why SPX was recently trading lower than when the Fed reconfirmed its rate-cut stance on March 20… S&P 500 Index (SPX) 
Source: eSignal
(Click to Enlarge) The next test is what will happen with the SPX’s momentum. As you can see, the Relative Strength Index (RSI) is testing support (red circle). And the blue MACD line is moving further below the orange Signal line as we head into another important week. Tomorrow, we’ll get another look at inflation and find out if it’s still following the Fed’s trajectory. We’ll also get a look at the latest Fed meeting minutes from March 20. Although the Fed said it is still on target to cut three times before the end of 2024, it was a split decision. Nearly half of members thought two cuts or less would be necessary. And that meeting took place well before last Friday’s jobs data. Friday’s NFP figures might have tipped that slim minority into a majority. If that’s the case, we’re going to see SPX’s priced-for-perfection rally continue to come under increasing pressure. And that promises plenty of swings ahead. Now let’s look at our trades this past week… 
(Click here to expand image) Unfortunately, our April 5 Weekly 5185/5205 bear call spread put us behind for the week. On the day, SPX closed just under our upper call strike. That led to a $13.47 loss on the trade. Our combined $7.87 from our four winners meant that we finished the overall week down $5.60, with our rolling year-to-date (YTD) return now sitting down $6.58 (or -$658 on a one-contract basis). We’ve had a bit of an up-and-down time of it over the past month or so. I know that’s frustrating. But it won’t take much to get back on track to solid profits. We just need to keep grinding with our strategy. That’s how we returned over $11k last year and over $9,500 the year before (returns for just one contract sold per trade – if you traded multiple contracts, you made even more). So please stay patient and keep with it. And don’t forget that if you have any questions, you can send them to feedback@opportunistictrader.com. I’m always glad to interact with readers. Regards, Larry Benedict
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