S&P 500 INDEX PRICE OUTLOOK: STOCK MARKET RECOVERY OR JUST A DEAD CAT BOUNCE?
- The S&P 500 Index ping-ponged back and forth within a 4% range before breaking out to intraday highs at the end of Tuesday’s trading session
- Stocks attempt to bottom following a near 20% selloff from record highs printed last month amid growing coronavirus concerns and an oil price war
- Treasury yields rallied a whopping 40-basis points off their lowest level in history which helped drive a rebound in the US dollar and risk appetite
The stock market staged a formidable recovery during Tuesday’s trading session as the S&P 500 Index spiked 5% to close at the 2,882 level. A rebound in US stocks – accompanied by a big jump in the US Dollar against other major currency peers and spike in Treasury yields – was driven largely by promise of fiscal stimulus by President Trump to offset economic impact from the coronavirus outbreak.
S&P 500 INDEX PRICE CHART: 5-MINUTE TIME FRAME (MARCH 09 TO MARCH 10, 2020)
Chart created by @RichDvorakFX with TradingView
S&P 500 Index futures touched their limit up circuit breaker overnight during low liquidity as headlines that the Trump administration would seek to provide ‘very substantial relief’ to counter intensified recession risk amid the growing coronavirus pandemic and oil price war sparked by Saudi Arabia.
Equities began to slide rapidly following the New York opening bell, but the S&P 500 Index nevertheless found support at intraday lows from the prior session around the 2,750 level. Stocks then started to surge into the close and finished at intraday highs.
| Change in | Longs | Shorts | OI |
| Daily | 2% | 2% | 2% |
| Weekly | -1% | 6% | 3% |
Despite today’s 5% rise in the S&P 500 Index and notable rebound in other major US stock market benchmarks – such as the Dow Jones Industrial Average, Nasdaq 100 or Russell 2000 – equities currently trade about 15% below their all-time highs recorded last month. This raises the question whether the S&P 500 Index rebound carries impetus or if the recoil in stocks is simply a ‘dead cat bounce.’
What Markets are Rising as the Dow Jones and Oil Collapse?
President Trump flirted the idea of a payroll tax cut and told GOP lawmakers that he wants payroll taxes waived until the upcoming presidential election is over. There were also reports that the White House is likely to push for aid to shale oil companies that have been adversely impacted by the coronavirus and crashing crude oil prices.
Although, there may be little appetite for bipartisan legislation that helps shore up a cracking economy during an election year. Similarly, the amount of time passed each day that fiscal stimulus fails to reach the economy, the worse that economic fallout from the coronavirus will likely be.
US DOLLAR INDEX PRICE CHART & TEN-YEAR TREASURY YIELD: 1-HOUR TIME FRAME (MARCH 03 TO MARCH 10, 2020)
Chart created by @RichDvorakFX with TradingView
Leading the charge in today’s risk-on move was a significant recovery in US Treasury yields. Specifically, the 10-year Treasury yield climbed 25-basis points on the day toward the 0.8% level, which helped US Dollar price action gain ground as well.
Strength in the US Dollar has been felt particularly relative to currencies tied to countries heavily dependent on oil exports such as the Canadian Dollar (CAD) or Mexican Peso (MXN). Also, seeing that the US Dollar is a popular safe-haven currency, its pro-risk Australian Dollar peer and AUD/USD eyes fresh lows.
That said, the US Treasury yield curve spread between the 10-year and three-month maturities (3m10s), a popular recession gauge, struggled to make a new high. Meanwhile, the S&P 500 Index has encountered serious technical damage that could hinder a prolonged rebound attempt in stocks. Also, from a fundamental perspective, the broader stock market index may struggle to rise with airlines, banks and shale at risk.
-- Written by Rich Dvorak, Junior Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
