S&P 500, Nasdaq 100 Forecasts – Hold or Fold on FOMC Decision?

S&P 500, Nasdaq 100 Prices, Charts, and Analysis

• Fed chair Powell’s press conference is key for stock markets.
• Nasdaq 100 remains under pressure.

The US stock markets are sitting in a holding pattern in European trade as investors and traders alike wait for the latest FOMC monetary policy decision (7:00 BST) and Fed chair Powell’s press conference (7:30 BST). Financial markets are currently pricing in a 50 basis point interest rate hike and the start of quantitative tightening, with further 50bp increases expected at the June and July meeting. While the policy decision is unlikely to deviate from expectations, the press conference 30 minutes later will need to be closely followed for any clues from Fed chair Powell on the size of rate hikes in the future.

The Fed has already stated that it is looking to front-load rate hikes and the market has started to price in, albeit modestly, the chance of a 75bp hike at the next FOMC meeting, depending on upcoming data. Chair Powell will be asked about this and whether a 75bp hike was talked about before this meeting. As with all central bankers, Powell will tell reporters what he wants them to hear and if he says that a 75bp is a live possibility, rate markets will push bond yields ever higher, weighing heavily on stock indices, especially the Nasdaq 100. If chair Powell gives a neutral answer, stock markets are likely to push higher in the short-term at least.

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The S&P 500 is quoted at around 4,192 pre-FOMC after having spiked down to 4,060 on Monday of this week. Monday’s reversal from this low produced a bullish hammer candle, a technical signal suggesting a trend reversal and a move higher. So far this is playing out, just, and if the Fed keeps their outlook neutral then a trio of recent highs around 4,308 look set to become the first point of resistance. Any hawkish turn by chair Powell and 4,060 will come under immediate pressure.

S&P 500 Daily Price Chart – May 4, 2022

Retail trader data show 64.06% of traders are net-long with the ratio of traders long to short at 1.78 to 1. The number of traders net-long is 1.44% lower than yesterday and 0.70% higher from last week, while the number of traders net-short is 8.05% higher than yesterday and 0.81% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests US 500 prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current US 500 price trend may soon reverse higher despite the fact traders remain net-long.

The Nasdaq 100 remains in bear market territory and the outlook remains cloudy at best. The indices fell over 4,000 after peaking on November 22 last year and a pattern of lower highs and lower lows remains in place. The growth-oriented indices is particularly susceptible to higher interest rates and the recent heavy sell-off in some of the tech big hitters – Amazon (AMZN), Netflix (NFLX), Nvidia (NVDA) to name a few - has weighed on the Nasdaq. A neutral FOMC outcome may allow the indices to bear rally back to the 13,580 to 13,900 zone but further advances look unlikely.

Nasdaq 100 Daily Price Chart – May 4, 2022

What is your view on the US Equity Markets – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.