DOW suffered a sharp decline overnight, losing -543.5 points or -1.66%, and broke an important near term support level. The banking sector led the sell-off, with the S&P 500’s bank index finishing down -6.6%. Investor caution was also evident ahead of today’s job data release. If the data shows strength, it would back up Fed Chair Jerome Powell’s indications of a 50bps rate hike, which could lead to higher rates that remain for longer. Good news could become bad news again, as investors remain wary of the potential consequences of higher interest rates on the market.
The non-farm payroll report is expected to show a growth of 200k jobs for February. Investors will also be closely monitoring any revisions made to January’s stellar 517k job growth. Unemployment rate is predicted to remain steady at 3.4%, while wage growth is expected to continue its momentum with a 0.3% mom rise.
Related data includes ADP private job report, which demonstrated a 242k increase in jobs for the same month, mostly driven by a 190k rise in the services sector. Meanwhile, ISM manufacturing employment index dropped from 50.6 to 49.1, while the ISM services employment index rose sharply from 50.0 to 54.0. The four-week moving average of initial jobless claims remained relatively stable at 197k. Overall, the data indicated a strong employment market, led by services.
Technically, the close below 38.2% retracement of 28660.94 to 34712.28 at 32400.66 suggests fall from 34712.28 is going to be a deep correction at least, with potential of being bearish reversal. Prior rejection by the 55 day EMA is also not a positive sign. Deeper decline is now in favor back to 61.8% retracement at 30972.55, if DOW couldn’t rebound in the coming days. Reactions from 30972 would reveal whether DOW is heading back through 28660.94 low to resume the down trend from last year’s high at 36952.65.