US stocks rallied on Wednesday after the Fed approved its biggest rate increase since 1994 but reassured markets that such jumbo-sized hikes would be rare.
The S&P 500, Dow Jones, and Nasdaq Composite all ended the session on a positive note as investors seemed relieved that the Fed raised rates in line with market expectations. Wednesday’s decision to raise rates by 75 basis points has taken the target for the Fed funds rates to 1.5% to 1.75%. It is worth keeping in mind that officials have forecasted 3.4% by the end of 2022.
During the press conference, Fed Chair Jerome Powell said that either a 50 or 75 basis point rate increase at its next policy meeting in July seemed likely. Currently, markets have priced in a 50-basis point hike next month with the probability of a 75-basis point around 65%. We expect rate hike expectations to remain influenced by economic data and speeches from Fed officials. On the data front, watch out for the US weekly initial jobless claims on Thursday and US May industrial production on Friday. These reports could provide further insight into the health of the largest economy in the world.
Focusing on the technical picture, the S&P 500 remains bearish on the daily charts. Prices are trading below the 50, 100, and 200-day Simple Moving Average while the MACD is below zero. Sustained weakness below 3810 could result in a decline back towards 3700. If bears are able to conquer this level, the next key point of interest can be found around 3600. A strong move above 3810 could trigger an incline towards 3975.
It's a similar story on the Nasdaq with the index respecting a bearish channel on the daily timeframe. Should 11800 prove to be reliable resistance, this could encourage a decline back towards 11208. A breakdown below this point may signal a selloff towards 10730. If bulls are able to push prices back above 11800, prices could test 12300 and 13000, respectively.