The financial markets are navigating choppy waters as a combination of high yields, anticipated layoffs, and fluctuating market indicators create a landscape of uncertainty. Recent data reveals that 63,583 layoffs, including contractors, have been primarily driven by efforts to shrink federal spending and workforce size. This comes amidst predictions for the S&P 500, which was forecasted to reach 5,200 by the end of 2025, though this target may need adjustment due to rising yields. The current 10-year yield stands at 4.27%, surpassing the 4% assumption previously used in financial forecasts.
The U.S. Bureau of Labor Statistics is set to release the February employment report on Friday, providing key insights through Nonfarm Payrolls and Unemployment Rate figures. Expectations hover around 160,000 new jobs, indicating the economic activity’s resilience despite current challenges. Meanwhile, the volatility index (VIX) displayed a range between 22.37 and 25.92 yesterday, settling down by 23 cents at $24.64 this morning. While the S&P has shown some stability by reclaiming its long-term trendline support at 5,738, the Nasdaq finds itself in a "correction zone."
As investors await the February employment data, the U.S. Dollar struggles under bearish pressure, influenced by retreating U.S. Treasury bond yields. The 2-year yield is currently at 3.95%, whereas the 10-year yield is at 4.27%. The S&P's recent performance shows a decline of 6.9%, with further drops required to reach the "correction zone" threshold of 5,530.
"Our 2025 forecast for the S&P 500 was that it would end 2025 at 5,200." – BJAM
This prediction is layered with assumptions that may not align with all perspectives and highlights the market's aversion to uncertainty, which tends to push resistance lower during volatile periods.
"For the record, our Capitalized Profits Model says that the S&P 500, with a 4% 10-year yield, has a fair value of roughly 4,500." – BJAM
The increase in the yield from 4% to 4.27% suggests that these valuation targets require downward revision.
"An over-valued market"…….remember that…..he is using a 4% 10 yr yield……currently the 10 yr is yielding 4.27% – which only means that his valuation target has to go lower….So, all else being equal (e.g., no changes in earnings growth expectations or risk premiums), moving the 10-year yield from 4% to 4.25% would indeed push the S&P 500 target lower. – BJAM
Investors remain cautious as they assess these economic indicators and forecasts, reflecting on how these variables might influence their portfolios and broader market strategies.