S&P 500, Federal Reserve – Talking Points
- S&P 500 stages rally but fails at key 3900 area
- Traders continue to ponder potential of 100 bps
Equities remain in negative territory after a strong morning push, as the S&P 500 failed to reclaim the key 3900 area. Stocks opened lower as overnight markets were cautious ahead of this week’s slate of central bank meetings. Wednesday takes centerstage with the FOMC policy meeting, followed by the Bank of England and Bank of Japan later this week. Traders have been pushing to price in the possibility of a 100 basis point hike from the Fed this week following the hot August CPI print. While that certainly would represent a surprise given current market pricing, it cannot be ruled out.
Geopolitical tensions also remain in focus, as President Biden indicated in an interview Sunday evening that the US would come to Taiwan’s defense during any hostile invasion. While these comments have since been walked back by the White House, hostilities between China, Russia, and the West remain in focus.
Ahead of the Fed, traders should remain wary of being long risk in the current environment. As was the mantra on the way up, the saying “don’t fight the Fed” holds true on the downside as the central bank embarks on its aggressive QT campaign. While markets may occasionally squeeze higher as a result of positioning, it appears we remain far away from an environment where investors can safely “buy the dip.” There will come a time where market participants will move away from the focus on tighter monetary policy, and instead traders will look to the lasting impacts of that policy on global growth. As FedEx hinted at last week, growth concerns need to be top of mind for investors and traders alike.
S&P 500 Futures 1 Hour Chart
Chart created with TradingView
As mentioned earlier, S&P 500 futures (ES) put in a robust rally off the premarket lows but failed to reclaim the key 3900 area. 3902 represents the 0.382 fib retracement of the advance off the June lows, and was a key downside target in my previous notes when we traded north of 4000. As prior support has now become stiff resistance, I would look to continue selling rallies into this area ahead of FOMC. I believe many will wait before putting positions of size on this week, which may lead us to ping-pong between the 3854 and 3900 area. If bulls are able to make a push above current resistance, I would look to trendline resistance around 3950-60 as an initial topside scalp. ES appears finely poised for what has the making of a crucial week for risk assets. As always, be nimble.
S&P 500 Futures Daily Chart
Chart created with TradingView
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— Written by Brendan Fagan
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