Fundamental
Overview
The S&P 500 yesterday
sold off aggressively following the FOMC decision as the market perceived it as more
hawkish than expected.
Overall, apart from some
slight tweaks, the Fed was in line with the market’s expectations, and the
selloff might have been an overreaction. There’s lots of noise during such big events, so be careful of that.
The data is what really
matters now as it will decide what the Fed is going to do. It will likely take
just one soft CPI report in January to see the market reacting in a dovish way and
print new all-time highs.
For now, the conditions for
further upside remain in place. In fact, Trump’s policies should be a positive
driver for growth in 2025 and with the Fed remaining in an easing cycle, growth
should remain positive and might even accelerate as seen already recently by
the Atlanta Fed GDPNow indicator.
The risk in 2025 is of
course inflation and the Fed’s reaction function. Right now, the Fed’s reaction
function is that a strong economy would warrant a slower pace in the easing
cycle and not a tightening. That should still be supportive for the stock
market.
If the Fed’s reaction
function were to change to a potential tightening, then that will likely
trigger a big correction in the stock market (if not even a bear market given
the stretched valuations) on expected economic slowdown. For now, we remain in
a “buy the dip” environment.
S&P 500
Technical Analysis – Daily Timeframe
S&P 500 Daily
On the daily chart, we can
see that the S&P 500 sold off from the highs following the FOMC decision.
The closest support
we have is around the 5855 level. If the price extends the drop into the level,
we can expect the buyers to step in with a defined risk below the level to
position for a rally into a new all-time high. The sellers, on the other hand,
will want to see the price breaking lower to increase the bearish bets into the
next support around the 5720 level.
S&P 500 Technical
Analysis – 4 hour Timeframe
S&P 500 4 hour
On the 4 hour chart, we can
see that we have already some dip-buyers entering the market trying to fade yesterday’s
reaction. Although there’s no clear support around these levels, some
aggressive buyers might still step in here with a defined risk below the yesterday’s
low to position for a rally into new highs. The sellers, on the other hand, will
look for the low to be broken to increase the bearish bets into the 5855
support.
S&P 500 Technical
Analysis – 1 hour Timeframe
S&P 500 1 hour
On the 1 hour chart, there’s
not much else we can add here as we are trading right in the middle of two key
levels. The red lines define the average daily range for today.
Upcoming
Catalysts
Today we get the latest US jobless claims figures, while tomorrow we conclude
the week with the US PCE data.
