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S&P 500 Outlook: Fed Easing Cycles Bode Well for S&P 500 in Short Run

S&P 500 Outlook: Fed Easing Cycles Bode Well for S&P 500 in Short Run

2019-06-21 08:15:00
Justin McQueen, Analyst
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S&P 500 Equity Analysis and News

  • S&P 500 at Record Highs with Fed Easing on the way
  • G20 Summit: Ceasefire, Escalation or Deal

S&P 500 at Record Highs with Fed Easing on the way

This week saw the Federal Reserve confirm its U-Turn in monetary policy having provided an easing bias in an attempt to sustain the expansion. Consequently, US equities rallied with the S&P 500 printing a fresh record high, while Gold prices surged to break $1400 and bond yields continued its declines. With Fed Fund futures pricing in 30bps of easing by the July, the Fed look set to cut interest rates at the next meeting.

Typically, Federal Reserve easing and in particular “insurance” rate cuts tend to bode well for the S&P 500 “initially” amid the inflow of easy money and a fresh injection of liquidity. As such, while the rise in equity markets may look a little unconvincing, the prospect of an easing cycle from the Federal Reserve may not provide a good opportunity for a sizeable pullback in risk assets just yet.

S&P 500 Outlook: Fed Easing Cycles Bode Well for S&P 500 in Short Run

G20 Summit: Ceasefire, Escalation or Deal

As we look towards next weeks G20 summit, we get the feeling of déjà vu. Last November, the talks between President Trump and Xi dominated the headlines at the G20 Summit in Argentina, shortly after both parties agreed a deal to suspend new tariffs. While history doesn’t repeat itself, it often rhymes and thus we expect a similar outcome next week. As such, while this may boost sentiment, it does not detract from the fact that tariffs remain and as long as they do, companies feel the pressure.

S&P 500 Price Chart: Daily Time Frame (Jun 18 – Jun 19)

S&P 500 Outlook: Fed Easing Cycles Bode Well for S&P 500 in Short Run

Technical Outlook

Having posted fresh record highs, there is a potential for a bit of consolidation, thus increasing the likelihood of a marginal pullback with the RSI not in overbought territory. Alongside this, a slight negative divergence also supports the case for a dip.

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--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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