- S&P 500 (SPY) tumbles again Wednesday after CPI shock.
- Nasdaq (QQQ) falls over 3% on Wednesday as investors exit everything.
- SPY breaks through $400 and closes below this level.
Stock markets remain on high alert after Wednesday’s CPI shock. The market had positioned itself moderately for a slightly better than hoped number. Instead, we got a worse than expected number and went back to the sell side. Fear and panic were felt everywhere. The US 2-year yield rose a massive 30 basis points on the SPI release and the dollar took a hit. Stocks suffered, of course.
S&P 500 (SPY) news
Again as is the trend, technology and the Nasdaq were the big losers on Wednesday. For once it wasn’t the full industry sell and some sectors ended in the green. Defensive sectors such as Energy (XLE), Utilities (XLU) and Materials (XLM) all ended the day positively. This was evident in the market breadth indicator, with 62% of shares closing lower. This is a significant improvement from 90% on Tuesday.
However, things remain firmly bearish this morning as all US futures markets are clearly pointing down and European indices are also pointing lower. We’ve had some downright hawkish comments from the Bank of England and the ECB is now on the warpath of raising interest rates. Despite this, bond yields have fallen. Most likely, bond markets are now pricing in a recession and a subsequent cut in rate hike forecasts. This is one of the reasons why the yield curve flattened somewhat on Wednesday. Yields on the front end rose as the Fed has yet to rise quickly, but the back end (a long time ago) sees a recession ahead and a slowdown in rates in 2023.
Neither is a great outcome for stocks. Short-term higher interest rates followed by a recession aren’t exactly music to the ears of equity investors. The earnings season has been quite strong, but with conference calls following the earnings reports, future earnings should already come under increasing pressure.
S&P 500 (SPY) Forecast
We’re a little less sure now about where we’re going from here. We issued our sub-$400 call last week, and now that we’ve met our goal, it’s time for a reassessment. The SPY is entering a slightly larger volume zone, which should give it some support. For the Fibonacci fans among you, we are approaching one of the more significant retracement levels, the 38.2% pullback. From the March 2020 pandemic low to the January 4, 2022 high, that 38.2% retracement sits at $379.80. In addition, the Relative Strength Index (RSI) and the Money Flow Index (MFI) both show the SPY as oversold. Does this mean it’s time to collect yourself? Our only limitation is the number of people looking for this upcoming rally. The markets generally prefer to surprise us, so we may have a few more hot days before everyone is flushed out or fed up. Then we can gather.
SPY card, daily
Do you like this article? Help us with feedback by answering this survey:
Comments are closed.