At the time of writing, the futures contracts for the S&P 500 are extending February’s declines into this month.
At the time of writing, the benchmark index for US stock markets has gone below the widely-watched 100-day and 200-day simple moving averages (SMA), having earlier already broken below the uptrend line from October’s trough.
Why are US stocks falling?
Generally, the US stock market fears the prospects of interest rates moving even higher or faster than expected.
After all, that was the S&P 500’s enemy #1 last year. And such fears have been revived.
For comparison, recall that coming into 2023, the S&P 500 initially enjoyed a stellar start to the year on hopes that the Federal Reserve won’t raise interest rates past 5% (the upper bound of the Fed funds rate now stands at 4.75%).
However, in February 2023, investors were shown data that point to still-robust hiring in the US labour market, as well as stubbornly-elevated US inflation, despite the Fed having already raised rates by 450 basis points over the past 12 months.
The recent economic data suggests that the Fed has to now hike its benchmark rates up to 5.5% in order to subdue inflationary pressures.
Hence, with the higher-peak for US interest rates being forecasted, stocks duly unwound some of its January gains, bringing the S&P 500 now to its lowest levels in 6 weeks.
What’s next for the S&P 500?
Further sustained declines may soon invite equity bears to test the mid-January low at 3885.5.
After that, stronger support should arrive around the 23.6% Fibonacci retracement from the S&P 500’s record high in November 2021 through to its October 2022 low.
If that 23.6% Fib level is reached, that would essentially wipe out all of the S&P 500’s year-to-date gains, which currently stand at 2.9%.
How long before next S&P 500 record high?
Overall, the S&P 500 has gone 290 days without a new record high. This is its longest stretch with a fresh peak since the Global Financial Crisis (GFC)
But for proper context, these 290 days and counting are still dwarfed by:
Ultimately, markets will have to get used to the eventual peak for US interest rates, and hope that the Fed rate hikes do not incur too much damage to the world’s largest economy as well as Wall Street earnings along the way.
Only then can the S&P 500 embark on a sustainable run chasing after a new record high.
And that might be a 2024 story, if all goes well this year.
Should markets increasingly expect an actual Fed rate cut in Q3 2023, or even an official pause on the Fed rate-hiking cycle at its next policy meeting in May (52% chance of such an occurrence), that should help the Nasdaq 100 officially lay claim to a bull market.
23 March 12:10
Governments and central banks across major economies are scrambling to limit the knock-on effects from the rapid collapse of Silicon Valley Bank (SVB), a key financier of the tech and startup ecosystem around the world.
13 March 11:19
However, this latest iteration is likely to succumb to fundamental drivers over the course of this month that are set to have a greater influence rather than technical signs.
9 March 11:56
Tech stocks have taken the latest FOMC minutes in its stride, despite already having dropped considerably over the past week over fears of a more-hawkish-than-expected Federal Reserve.
23 February 10:53
There's a better website for you
A new exciting website with services that better suit your location has recently launched!
Sign up here to collect your 30% Welcome Bonus.