US equities ended slightly lower on Wednesday, relinquishing earlier gains as mounting concerns over rising interest rates and recession fears sapped risk appetite.
Market sentiment was initially boosted by Federal Reserve Chair Jerome Powell's remarks during his testimony to the US Senate Banking Committee. Powell expressed optimism over the US economy and stated that the Fed was “strongly committed” to bringing down inflation. However, he also acknowledged that soaring inflation could cause an economic recession with a soft landing “very challenging”.
Powell is set to give the second congressional semi-annual testimony on Thursday. If he offers fresh insights into rates or fuels expectations around the Fed maintaining an aggressive approach towards tightening monetary policy, this could enforce more pressure on equity markets.
The S&P 500, Dow Jones, and Nasdaq Composite all ended the session on a slightly negative note. While the fundamentals will play a key role in where these major indexes close this week, bears remain in control on the technical front with the path of least resistance pointing south. Other than Powell’s testimony, it may be wise to watch out for the US weekly initial jobless claims published this afternoon which could provide further insight into the health of the US economy.
In regards to the technical picture, the S&P 500 remains under pressure on the daily charts. There have been consistently lower lows and lower highs while prices are trading below the 50, 100, and 200-day Simple Moving Average. A strong breakdown and close below 3700 could encourage a decline towards 3600 and lower. Alternatively, a breakout above 3810 may signal a move back towards 3975.
The Nasdaq could be gearing up for a potential breakout/down opportunity. Given how the fundamentals are in favour of bears and the trend is negative, this increases the likelihood of a move to the downside. A strong break below 11208 may open the doors to levels not seen since September 2020 at 10730. If prices can push back above 11800, the next checkpoint can be found at 12300.