US STOCKS OUTLOOK:
- S&P 500, Dow Jones, and Nasdaq 100 erase morning losses and swing into positive territory in the afternoon trade as dip buyers swoop in
- Despite late daygains, the macroeconomic landscape is becoming less friendly for stocks
- First quarter earnings season will be front and center in the coming weeks
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Most Read: Dow Jones, Nasdaq 100 and S&P 500 Near-Term Technical Outlook
After suffering heavy losses in the morning trade following the Fed fallout, U.S. stocks staged a moderate rebound as dip-buyers stepped in to stem the bleeding and pick up beaten-down shares. When it was all said and done, the S&P 500 jumped 0.42% to 4,500, ending a two-session decline. The Dow Jones, for its part, climbed 0.25% to 34,583, while the Nasdaq 100 rose 0.23% to 14,531, after tumbling as much as 1% at midday.
Historically, April has been one of the best months for equities, with the S&P 500 up 1.5% on average since 1928. However, it remains uncertain whether the bullish pattern will hold in 2022 amid rising risks to the economy, including soaring consumer prices, fading monetary policy stimulus and geopolitical turmoil.
Although sentiment was on the mend following the solid equity market rally in March, rising yields threw a monkey wrench into the nascent recovery. In recent days, interest rates have accelerated their ascent on expectations that the U.S. central bank will begin to remove accommodation more forcefully to tamp down inflation, a situation that has led traders to reassess the outlook and start cutting exposure to some risk assets.
If there was any doubt about the Federal Reserve's hawkish intentions, it was dispelled yesterday following the release of the March FOMC minutes. The account of the two-day meeting showed in no uncertain terms that policymakers are leaning toward one or more 50 basis point hikes in the future and support an aggressive strategy of prune the bank’s balance sheet, which calls for allowing up to $95 billion in bonds to mature each month without being replaced.
The Fed’s fast and furious tightening roadmap, while necessary to restore price stability and credibility, may become a headwind for equities for two reasons:
- Rising borrowing costs weigh on stock valuations by increasing the rate at which future cash flows are discounted. This pressure is more pronounced for technology and growth shares, whose valuations are based on earnings expected to materialize further into the future.
- Overly restrictive monetary policy over the coming quarters may spark a recession, posing a major threat to corporate earnings. Although the economy remains healthy at present, thanks in part to a robust labor market, there are signs that trouble may be brewing. It is difficult to say for sure how events will unfold, but a large segment of the market believes that the Fed will not be able to reduce inflation without triggering a hard landing (an economic downturn).
With the outlook subject to extraordinary uncertainty, volatility is likely to pick up in the near term. The first quarter reporting season, slated to begin next week, may exacerbate price swings, especially if results disappoint and companies start issuing profit warnings due to margin compression and weakening consumer demand. Traders should keep an eye on corporate performance, but the current environment appears to be becoming less friendly for stocks.
NASDAQ 100 TECHNICAL ANALYSIS
The Nasdaq 100 fell towards technical support near 14,350 in the early trade, but bounced off those levels as buyers resurface to push price higher. If the index manages to extend its recovery in the coming sessions, resistance is seen at 14,901, followed by 15,150, the 200-day simple moving average.
On the flip side, if sellers return and retake control of the market, support rests at 14,350. If we see a decisive move below this floor, the focus shifts down to 14,070, followed by 13,735.
Nasdaq 100 (NDX) chart prepared in TradingView
| Change in | Longs | Shorts | OI |
| Daily | -3% | -2% | -2% |
| Weekly | 15% | -13% | -3% |
S&P 500 TECHNICAL ANALYSIS
The S&P 500 is chopping around its 200-day simple moving average, a sign of little conviction in the market. If prices resolve higher in the coming says and the key moving average is overtaken decisively, we could see a move towards 4,590, followed by 4,635, the March high.
On the other hand, if the 200-day SMA is lost and the index consolidates lower, support lies at 4,425. However, if sellers manage to breach this area on the downside, we could see a retest of the 4,280 area.
S&P 500 (SPX) Chart by TradingView
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---Written by Diego Colman, Market Strategist & Contributor
