The S&P 500 was pulled back after the US Federal Reserve’s latest policy decision.
This benchmark index for US blue-chip stocks is currently testing support around the psychologically-important 4,000 mark, also where the 38.2% Fibonacci level from this year’s peak-to-trough decline currently resides.
Immediate resistance can be found at the S&P 500’s 200-day simple moving average (SMA).
What did the Fed say and do?
However, other segments of global financial markets are still massively doubting the Fed’s hawkish intentions.
Stocks pay limited heed to Fed’s hawkish messaging
In recent past, investors and traders have been culpable of hearing only what they want to hear, fixating on the Fed’s eventual pivot rather than Chair Powell’s reluctance to prematurely end the central bank’s rate hike campaign.
Hence the S&P 500’s gains since October alongside gold prices, as the US dollar faltered in recent months.
However overnight, it looks like markets are being slightly more prudent, at least pausing to digest Chair Powell’s latest comments, as opposed to completely disregarding it.
The S&P 500 has now unwound all of its gains since the cooler-than-expected US inflation data released earlier this week which bolstered perhaps premature hopes that the Fed is warming up to the idea of lowering interest rates once more.
Such price action has all but dashed hopes for the “santa rally” = gains in US stocks typically occurring around the year-end period.
To be fair, the S&P 500 did come tantalisingly close to a bull market, with the rally from mid-October’s trough to this week’s post-CPI peak standing at 18.66%, just shy of that 20% threshold which denotes a new bull market.
Year-end season may still see sharp moves for S&P 500
Despite the year’s major fundamental catalysts now behind us, the S&P 500 could still see big swings between now and year-end.
This is likely to be more a case of the expected thinned-out liquidity over the final two weeks of 2022, which may exaggerate any moves in the S&P 500. After all, most traders and investors are set to pay a lot less heed to global financial markets, focusing instead on the year-end revelry.
S&P 500: Key support and resistance levels
Ultimately, in order to meet the textbook criteria for a “bull market”, the S&P 500 has to climb above the 50% Fibonacci level at 4156.2 and also conquer the 20% mark (from its October low) at 4191.12.