José Luis Cava: How far does the S&P 500 have to go to enter an upward path?

We connect as every day with José Luis Cava, independent analyst, to analyze the American market.

Wall Street merchant banks have lowered their growth forecasts for the US economy. But the question is whether the labor market will reflect that economic weakness or whether, on the contrary, it will continue to be strong, prompting Powell to continue to aggressively raise interest rates.

Cava explains to us a “very curious fact” that is taking place in the American economy. “Industrial production and the labor market often go hand in hand.” Therefore, when production increases, so does employment. Now, Cava explains how industrial production has contracted in the first and second quarters, while we see how employment remains strong. This explains Powell’s performance. Cava explains that if Powell trusts the labor market he will raise rates, but “we are facing an economy that is headed for a recession.”

The key question for all analysts at the moment according to Cava is: Why is this divergence taking place? “This divergence has not occurred in the rest of the recessions that the United States has suffered.”

Cava explains to us the reason for this divergence. First of all, we come from the crisis caused by covid. Also, all macro indicators may not move at the same speed. These are the data that anticipate the recession in the United States, according to Cava.

Cava shows us the graph that shows the eurodollar futures. “Dollar futures traded in Europe”. The graph shows how “in two weeks there has been a sharp drop in the levels of interest rates of the federal funds expected for 2023”. “The smartest people’s outlook indicates that the US economy will slow sharply in 2023.”

Despite the fact that the economic situation does not look very good for 2023, we see how the S&P 500 remains above 3,740 points. Now, Cava points out that the S&P 500 will enter an upward trend as long as it exceeds 3,890 points, otherwise it would fall.

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