Stocks don’t believe the Fed!

Over the past few days, Fed member after Fed member has been on the wires talking about how the Federal Reserve still has a long way to go to tame inflation. They talked about the need to get inflation to target, even at the expense of a strong labor market. San Francisco Fed President Daly said that she would start with 50bps for September because that is what the data is telling her. But she went on to say that “if we just see inflation roaring ahead undauntedly, the labor market showing no signs of slowing, then we’ll be in a different position where a 75bps increase might be more appropriate”. However, stock indices don’t quite see it that way as they continue to bust a move higher.

Markets seems to think that the PMIs released over that last few days show signs of a slowing world economy. In addition, inflation data seems like it may have peaked. Housing prices are lower, and some price components of manufacturing data were lower as well, such as the Philly Fed Manufacturing Index and the ISM Manufacturing Index. Does the Fed have it wrong? Bad data is good data for the stock market as it means that the Fed will raise rates as a slower pace, and possibly even stop all together by Q1 of 2023! However, the next Fed meeting isn’t until the end of September, so there is a lot more data to see before then. For now, stock markets seem to be betting on a less hawkish Fed at the September meeting.

What are economic indicators?

The S&P 500 has been moving lower since the beginning of the year. On June 17^th, the large cap index made a new low for the year at 3636, posting a false breakout below the bottom trendline of a descending wedge. As is often the case, when price fails to break one side of a pattern, it moves to test the other side of the pattern. On July 19^th, the S&P 500 broke aggressively above the top, downward sloping trendline of the descending wedge. Today, price broke above the 50% retracement level from the highs of March 29^th to the lows of June 17^th, near 4137.4. In addition, if today’s price closes above 4140.6, it will have formed a bullish engulfing pattern, indicating a possible further move higher. The next resistance is at the highs of May 30^th at 4214.6, then the 61.8% Fibonacci retracement level of the recently mentioned timeframe near 4255.1. Above there, price can move to the highs of May 4^th at 4308.6. However, if the Fed turns out to be correct, and inflation is still increasing, stocks may turn lower. The first horizontal support is at 3919.8. Below there, price can fall to a confluence of support at the top, downward sloping trendline of the long-term descending wedge and the lows of July 14^th, near 3721.6. The next support level is the low from June 17^th at 3638.8.

Source: Tradingview, Stone X

Trade the S&P 500 now: Login or open a new account!

Other US stock indices such as the NASDAQ 100 and the Russell 2000 have similar patterns. Both indices broke out of descending wedges and, today, broke above the 50% retracement level from the highs of March 29^th to the lows of June 16^th. Will stock indices continue to move higher? We may have to wait until Friday’s NFP data to find out!

Learn more about index trading opportunities.

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.