FUNDAMENTAL
OVERVIEW
The S&P 500 briefly
probed below a major support on Wednesday following the FOMC decision as the
market initially interpreted it as more hawkish than expected but eventually
realised it actually wasn’t.
As a reminder, the
Fed hiked interest rates by 25 bps as widely expected in an unanimous decision.
Moreover, the part saying that inflation remained elevated in part reflecting
supply shocks was removed. The SEP showed an upward revision for growth and
inflation, and downward revision for unemployment.
The most important
thing was the dot plot where the Fed projected just one more rate hike in 2026,
with rates staying higher throughout 2027 before rate cuts coming in 2028. That
was more dovish compared to market’s pricing which saw one more rate hike in
2026 and two more in 2027.
I think this
shows that the Fed has low appetite for an extended tightening cycle. Fed
Chair Warsh mostly repeated his Jackson Hole speech, but he was still seen as
being more hawkish. I’m not sure why. Anyway, the market brought forward rate
hike expectations for October, with the probability now standing around 50%. I
guess that’s because Warsh mentioned that they want to see a timelier return to
the 2% target.
After the initial overreaction got faded, traders
started to position for a potential de-escalation in the Middle East after a
few promising news, such as China privately asking Iran to use its influence
over the Houthis to help contain the group’s military campaign against Saudi
Arabia, as well as hopes for a broader de-escalation after the UN General
Assembly, where Trump is expected to meet with Gulf leaders to discuss the next
steps in the war with Iran and will also likely meet Iranian officials.
A de-escalation would send oil prices lower, further easing inflation
and rate hike concerns and ultimately support risk sentiment and the S&P
500.
Economic data will also be important given the current market’s pricing.
When positioning and market expectations become stretched, even a modest shift
in the data can trigger a significant reversal. If US data starts surprising to
the downside, expectations for aggressive rate hikes will likely be reduced, giving
the stock market an additional boost.
S&P 500 TECHNICAL ANALYSIS – DAILY TIMEFRAME
On
the daily chart, we can see that
the S&P 500 (CFD contract) probed below the major 7,580 support but eventually
rebounded strongly and it’s now approaching a key downward trendline around the
7,715 level. We can expect the sellers to lean on the trendline with a defined
risk above it to position for a drop back into the support. The buyers, on the
other hand, will want to see the price breaking higher to pile in for a rally
into new record highs.
S&P 500
TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On
the 4 hour chart, we have an upward
trendline defining the bullish momentum. If we get a pullback, we can expect
the buyers to lean on the trendline with a defined risk below it to keep
pushing into new highs. The sellers, on the other hand, will look for a break
lower to increase the bearish bets into the support next.
S&P 500 TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as the two trendlines remain the key technical levels to
watch. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow, we have Trump meeting
with Gulf leaders and potentially with Iran’s President at the UN General
Assembly. On Wednesday, we get the Flash US PMIs. On Thursday, we have the
Trump-Xi meeting.
This article was written by Giuseppe Dellamotta at investinglive.com.