The stock market came into the week oversold and exhausted from the roller coaster moves last week. In general, the market’s movement this week seemed to have been driven primarily by economic reports and hawkish Federal Reserve talk. 

The S&P U.S. Manufacturing Purchasing Managers Index (PMI) was the first catalyst to push the market higher. The data released indicated the PMI for September was 52.0, better than expected. This positive news, combined with exhaustion from last week, propelled the market higher toward the daily mean. (21-day exponential moving average)

However, that bullish market sentiment didn’t last long as this rally was shorter than last week.

On Wednesday, the markets reached their high for the week, topping out after hitting a liquidity pool that stopped the upside movement in its tracks. As discussed this week, institutions may use liquidity pools to take profits and get positioned for the market’s next move. 

The tide turns aggressively.

The second half of the week was the opposite of the first three days. The selling pressure began in the overnight market on Wednesday and carried on through the volatile cash session on Thursday. 

The choppy price action on Thursday afternoon abruptly ended as Chicago Fed President Charles Evans announced, “future rate hikes of 125 basis points are expected over the next two meetings“. The market reacted negatively, ending the volatile cash session in the red. 

The bearish tone was set for Friday before the opening bell even rang. The non-farm payroll (NFP) data sent the futures tumbling 70 points an hour before the market opened. 

The NFP reported 263,000, beating the estimated 355,00 but was a decline from the previous month of 315,000. The data showed a continued decline month-over-month. The reduction in job numbers can be seen as bad for the economy due to less consumer spending. Major indices responded to this news as expected and quickly wiped out most of the gains made early in the week. 

How will the markets respond next week?

As we saw with the price action this week, the market trend next week will heavily depend on economic data. 

On Wednesday, the  Producer Price Index (PPI) report will be announced at 8:30 a.m. Eastern. This report will indicate the level of inflation that wholesale is battling.

Later in the day, the Federal Open Market Committee (FOMC) meeting minutes will take place at 2:00 p.m. Eastern.

Thursday, the U.S. Consumer Price Index (CPI) report will be announced at 8:30 a.m. along with the initial jobless claim. The market has reacted strongly to the CPI data in the previous months.

Friday, retail sales will be released at 8:30 a.m. Eastern.