Post-Fed Rally Leads to Break of Monthly Opening Range

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S&P 500 Speech Points

The S&P 500 is trading at a recent monthly high (4463) as it extends its lead after the Federal Reserve a rate hike, and the improvement in risk appetite may keep U.S. stock prices afloat for the next few days as the central bank seems not to rush its balance sheet.

Fundamental Forecast for S&P 500: Neutral

The S&P 500 index releases the monthly opening range for March even as the Federal Open Market Committee (FOMC) delivers a 25bp exchange rate, as the central bank expects.begin reducing its holdings of treasury bills and agency debt and agency mortgage-backed securities at an upcoming meeting.

It looks like the FOMC will follow a predictable path in normalizing monetary policy as the committee promises to “avoid adding uncertainty to what is already an extraordinarily challenging and uncertain time“and it remains to be seen whether the committee will reduce its balance sheet before its next quarterly meeting in June as” tThe US economy is very strong and well positioned to pursue a stricter monetary policy. ”

Until then, swings in investment confidence may shake stock prices as the FOMC stops quantitative easing (QT), but the a recent recovery in the S&P 500 may turn out to be a correction rather than a resumption of a bullish trend because the update to the Summary of Economic Projections (SEP) indicates that the central bank will deliver a series of tariffs over the coming months.

S&P 500 Forecast: Post-Fed Rally Leads to Breaking Monthly Open Interval

Source: CME

As a result, the CME’s FedWatch Tool shows a 100% probability of at least another 25bp rate hike at the next rate decision on May 4, with a 40% chance of seeing the Federal Fund’s rate rise to 0.75% to 1.00% of the current threshold. from 0.25% to 0.50%.

In turn, the risks posed by the Russo-Ukrainian war coupled with the change in Fed policy may produce headwinds for the S&P 500 index as President. Jerome Powell and Co. sees the Federal Funds rate up 2.00% in 2022, and the regime change may continue to dampen risk appetite as the FOMC is “determined to take the necessary measures to restore price stability. ”

That said, recent price action raises the scope for a larger recovery in the S&P 500 index as it exits the open range for March after reversing before the annual low (4105), but the advance of the monthly low (4138) may be an upcoming correction with the Fed on track to reduce its balance sheet in the coming months.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong



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