S&P 500 and Nasdaq 100 Subdued on Hawkish Fed, Recession Risks Torment Investors
US STOCKS OUTLOOK:
- U.S. stocks were mixed on Wednesday amid hawkish central bank commentary
- Fed Chair Powell doubled down on his pledge to restore price stability, giving no signal of a dovish pivot despite rising recession risks
- This article looks at the key technical levels to watch on the Nasdaq 100 in the coming days
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U.S. stocks were subdued on Wednesday as traders remained reluctant to buy the dip and take unnecessary risks at a time of rising economic headwinds, including stubbornly high inflation and rapidly slowing growth. In this context, the S&P 500 fell 0.07% to 3,818, retreating for the third consecutive session, despite speculation that pension fund end-of-quarter rebalancing activity would boost demand for equities and drive their prices higher this week. The Nasdaq 100, for its part, managed to eke out a tiny 0.18% gain, finishing the day at 11,658, slightly above a key technical support.
Concerns about the outlook increased after Fed Chairman Powell pledged to use the tools at his disposal to bring inflation down to 2% and said the biggest mistake would be to allow expectations to become unanchored, a sign that policymakers will press ahead with their plans to front-load interest rate hikes.
The aggressive normalization cycle contemplated by the central bank may undermine the recovery, raising the likelihood of a hard landing, a scenario that could inflict further harm to the stock market. Although the balance of risks around economic growth has deteriorated, the Fed has not yet blinked, suggesting that the institution is prioritizing the restoration of price stability regardless of the costs, at least for now.
Tighter financial conditions and extremely bearish sentiment will exacerbate near-term volatility, preventing equities from staging a meaningful and sustainable rebound. Against this backdrop, the S&P 500 and Nasdaq 100 will remain biased to the downside heading into the second half of the year, with traders selling rallies every chance they get.
The investment landscape could get worse before it gets better. With the second-quarter reporting season just around the corner, traders should prepare for the possibility of weak earnings and poor corporate guidance amid falling margins and rising recession risks. Should this scenario play out, we could see another leg lower on Wall Street in coming weeks and months before risky assets start to bottom out.
Looking ahead, there are high-impact events on the U.S. calendar on the last two days of the week. That said, the May core PCE report, the Fed's favorite inflation indicator, will be published tomorrow. Friday, meanwhile, sees the release of the June ISM manufacturing survey. Should final results deviate significantly from consensus expectations, volatility could spike, with price swings amplified by thinner liquidity ahead of the U.S. holiday weekend.
NASDAQ 100 TECHNICAL ANALYSIS
Last week, the Nasdaq 100 rallied forcefully, but sellers resurfaced when the index reached a key resistance area near 12,175/12,225, halting upside momentum and paving the way for a sharp bearish reversal earlier this week. With the latest moves, the Nasdaq 100 is sitting slightly above an important technical support around 11,500. If this floor is violated in the coming days, traders should brace for the possibility of a retest of the 2022 lows. On the other hand, if downside pressure abates and buyers manage to spark a rebound, initial resistance is seen at 12,175/12,225, followed by the 50-day simple moving average. On further strength, the focus turns to to 12,600.
NASDAQ 100 TECHNICAL ANALYSIS
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