Negative inflation data may renew decline in SPX

The S&P 500 index was successfully recovering up to Friday after the slump caused by fears of import tariffs in the United States. However, the trading session on February 7 ended with a decline of almost 1% and a quote reversal towards the level of 6,030. On Monday morning, the bulls tried to regain control of the situation, but events of the next few days are unlikely to give them any help. A new wave of sales in the US stock market is more probable.

Friday's pullback in the S&P 500 index was driven by the release of the US labor market report for January. Although the number of jobs created was slightly lower than expected (143,000 instead of 169,000), it was fully offset by a decline in the unemployment rate from 4.1% to 4%. Moreover, the annual rate of wage growth remained at the December level of 4.1%, while it was expected to slow down to 3.8%. Overall, the data keep showing the stability of the US labor market and the fact that there is no urgency to cut interest rates.

The price growth statistics for the first month of 2025, due on Wednesday, may confirm this point of view. According to a Bloomberg survey, analysts expect a slight decline in core inflation (from 3.2% to 3.1%), while the overall indicator in January remained at the December level of 2.9%. This discourages expectations of another step by the Fed to ease monetary policy any sooner than the summer.

Head of the US regulator Jerome Powell is likely to advocate this point of view during his speech to Congress on Tuesday and Wednesday. Bloomberg experts believe that the Fed Chair will outline the need to achieve significant progress in reducing inflation or see a clear weakening in the labor market for further rate cuts. In the absence of these conditions, the borrowing cost will not decline, making it less attractive to invest in the S&P 500 index stocks.

The Stochastic indicator is showing a sell signal, putting additional pressure on the US stock market. The nearest downside target for the S&P 500 is the 6,030 level.

Consider the following trading strategy:

Sell the S&P 500 not higher than the 6,080 level. Take profit – 6,030. Stop loss – 6,110.