S&P 500 Hits New Record High as Fed’s Powell Vows to Stay Dovish

S&P 500 INDEX POPS TO FRESH ALL-TIME HIGHS AS FED CHAIR POWELL VOWS TO LOOK THROUGH TRANSITORY INFLATION INCREASES

• S&P 500 jumps to a new intraday record high in the wake of the Federal Reserve
• Stocks pushing higher as Fed Chair Powell vows to keep policy accommodative
• Powell echoes that it is not yet time to have a conversation about tapering QE

The S&P 500 Index is gaining ground and probing fresh record highs as Fed Chair Powell sparks a late-session bid beneath stocks. Federal Reserve officials agreed to leave the central bank’s policy path unchanged as widely expected, and Chair Powell further soothed investor nerves surrounding potential tapering of asset purchases during his press conference.

POWELL PRESS CONFERENCE KEY TAKEAWAYS

• Inflation: Inflation data will likely rise further before moderating. The recent pickup in consumer spending stands to boost prices, but this will likely be temporary. It seems unlikely that inflation would rise persistently amid labor market slack. We are in close touch with industries struggling with supply chain bottlenecks. The Fed would use its tools if inflation expectations were to move persistently above 2%. Breakevens are close to mandate-consistent level whereas before they were below.
• Economy: Controlling the course of the virus is the most important factor for the economic recovery. The recovery remains uneven and far from complete. Sectors of the economy most affected by the pandemic have shown improvement. We have not seen the level of economic scarring we were worried about. We are seeing the strongest housing market since the global financial crisis, but do not see financial stability concerns around housing. Spending on services has picked up, and we want to see continued string of strong monthly jobs numbers.
• Tapering: Substantial further progress needed before we taper asset purchases from the current level of $120-billion per month. It is not time yet to have conversations about tapering. Transitory rises in inflation won’t warrant a rate hike. Some things in equities do reflect froth in markets, but has a tremendous amount to do with vaccines and economic recovery rather than Fed policy. Overall financial stability is mixed but manageable. Need to see more data to determine whether there has been substantial further progress, and so far, we are not close to reaching that goalpost.

S&P 500 PRICE CHART: 15-MINUTE TIME FRAME (26 APRIL TO 28 APRIL 2021)

Chart by @RichDvorakFX created using TradingView

That said, the 4,200-price level has proved to be a formidable area of technical resistance so far for the S&P 500 Index. In addition to news flow surrounding the Fed, investors are also digesting the latest round of earnings. Strong quarterly results from tech darlings like Apple and Amazon could provide the S&P 500 with a bullish catalyst to eclipse this technical obstacle. Traders might also want to keep an eye out for commentary from President Joe Biden who is scheduled address congress tomorrow.

— Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight