S&P 500 – Talking Points
- S&P 500 halts multi-session decline, but fails at 4160 again
- Traders eagerly await PCE data, Fed’s Powell
- USD strength, higher yields undermine equity bid
Stocks advanced on Wednesday to put a halt to a three-day slide as traders cast an eye to Friday’s slate of economic events. After soaring over 9% in July, the S&P 500 is effectively flat in August as we push on toward month-end. Thursday sees the start of the Fed’s Jackson Hole Economic Symposium, with Fed Chair Jerome Powell set to speak Friday morning following the release of PCE data. Market participants are struggling for conviction heading into the meeting, with assets seeing spurts of volatility this week. Equities have been rangebound while the US Dollar has continued to soar on Euro weakness and hawkish Fed policy bets.
Dismal economic data this morning as well as on Tuesday may see Chair Powell alter his tone slightly, should he feel that recent rate hikes are starting to filter their way through to the broader economy. There is often a lag associated with monetary policy, but if Chair Powell indicates that the economy and demand are slowing to the Fed’s liking, market participants may feel that a pivot or pause is closer than previously thought. The timing of the Fed “pivot” has been the hot topic for traders lately, as poor economic data has forced forward looking traders to try and price in both a recession and a regime shift from the US central bank.
Any talk of a recession from Powell may weigh heavily on equities, as forecasts for the US consumer and corporate earnings may get slashed if the Fed feels storm clouds are approaching. Whether a soft landing can be achieved is yet to be seen, but traders are currently buying what the Fed is selling. So long as inflation expectations remain anchored, Jerome Powell and co. may not feel the need to upset the apple cart too much when it comes to risk assets.
S&P 500 Futures (ES) 1 Hour Chart
Chart created with TradingView
S&P 500 futures continue to churn below key resistance around 4160. This morning’s rally into that area was promptly rejected, mirroring price action from the last few sessions. Bulls appear to gain traction on dips into the 4120-22 area, but the chop may persist if traders continue to lack conviction as we head into Friday. The double-whammy of PCE data and Fed Chair Powell speaking could be enough to spark a break out of this “40-ish” point range we find ourselves in.
On a soft PCE print and/or a dovish Powell, ES may look to prior support at 4200 as near-term resistance. If the market’s aggressive pricing of Fed policy is talked down, price may squeeze higher toward the rejection zone at 4300. Downside momentum may gain speed however if Chair Powell reinforces his desire for tighter financial conditions, potentially even restrictive policy into year-end. Should price drop like an anchor, little remains in the way between current levels and the psychological threshold at 4000.
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— Written by Brendan Fagan
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