S&P 500 Forecast for the Week Ahead

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S&P 500 | The Fed Are Less Supportive
Traders Maintain Sell the Rally Bias

S&P 500 | The Fed Are Less Supportive

The S&P 500 is on course for the worst MTD performance March 2020. The surprise of the week coming from Fed Chair Powell’s press conference, having fallen into the belief that “too much was priced in” and therefore, Powell would have a hard time in surprising those hawkish expectations, particularly after the recent tech rout. I was wrong, Powell arguably delivered one of his most hawkish pressers since 2018.

S&P 500 In Correction Territory

Notable Powell Comments

He was very positive on the labour market, so much so that he stated “there is quite a bit of room to raise rates without dampening employment”
On the possibility of a 50bps hike, Powell noted that the Fed has not made any decision on the size of rate increases. In other words, not explicitly ruling out a 50bps and thus money markets have priced in 30bps worth of tightening in March. However, for now, I still expect a 25bps rate lift-off.
Regarding recent market volatility, the Fed Chair had been dismissive of the recent pullback and in fact endorsed the tightening of financial conditions
A hike at every meeting? Powell did not rule out a rate hike at every meeting, adding that this cycle is unlike previous cycles, which was another hawkish blow for risk appetite and thus added to the repricing in Fed Fund Futures with 120bps of tightening now priced in for this year and analysts now forecasting as much as 7 hikes (a bit too extreme in my view).

Source: Refinitiv, DailyFX

As it stands, the market remains in a sell the rally bias, particularly with the bounce back from 4200-4220 failing at the 200DMA, which also coincides with the 38.2% Fib of the recent sell-off. That being said, momentum indicators are sitting in heavily oversold conditions as signalled by the RSI. Meanwhile, the AAII sentiment survey shows that bearish sentiment has hit an 8yr peak and thus raises the question whether the index is carving out a bottom. Resistance sits at 4420-30, while prior resistance now support at 4500 would be key in batting away the bearish technical outlook.

Russian Risks Remain

While the Fed has been the dominant driver behind recent price action, tensions surrounding Russia-Ukraine remains in the background and a quick turn of events has the potential to create a violent reaction. Therefore, much like Powell’s recent comment surrounding monetary policy, it is important to be nimble.

S&P 500 Chart Daily Time Frame

Source: Refinitiv

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