S&P 500 : After The FED`s Shock
(Thu, 11 Jun 2020). Fed’s Punchbowl is Here to Stay. Second Wave Concerns on the Rise. S&P 500 Looking to Test Support on the Pullback.
Equity markets under pressure post the Federal Reserve monetary policy decision, however, with Powell and Co. making it clear that the Fed’s punchbowl is here to stay, this pullback in risk appetite looks to be an overdue retracement. Keep in mind that equities have seen a stellar month so far with the likes of the Dow Jones up over 6% this month, while the Nasdaq 100 broke to a fresh record high having hit the 10,000 milestone. That said, this pullback will look test the confidence of tactical dip buyers.
Fed Recap: While the Fed noted that the economic outlook remains highly uncertain, despite subtle signs of a recovery, most notably from the NFP report. The Fed’s dot plot highlighted that rates will be going nowhere over the forecast horizon to 2022 with Chair Powell echoing this stance by stating that the “Fed not even thinking about thinking about rate hikes”. In turn, this underscores the fact that with the Fed put in place investors have been able to overlook the dire consequences of the coronavirus crash for the time being.
Second Wave Concerns: As economies go back online from lockdown, it is worth keeping an eye on the coronavirus case count to assess whether a second wave is on the way. On the whole, while reopening economies have been a relatively smooth operation, there have been some red flags across US states with Texas recording its largest 1-day total, Florida saw the most cases in any 7 days, while California saw the highest hospitalisations in a month. The influx of liquidity has aided equity markets in its recovery, but a second wave can take that all away.
S&P 500: SUPPORT FAILURE OPENS DOOR TO LARGER FALLOUT
As the S&P 500 continues pullback from the 3200 level, eyes are now for a test of support situated at 3110, which marks the 76.4% fib retracement of the Q1 sell-off. Failure to hold opens the door to a larger retracement towards 3000-20. Topside resistance, for now, resides at 3200, with the key barriers at 3300-30 where the early March gap resides. While the short-term pullback may find dip buyers looking for some tactical upside, the longer-term remains weak given the dire economic consequences for the global economy, which will have to be repriced in risk assets.
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