The S&P 500 Index (CME: ES) treads water, currently hovering near all-time highs ahead of the highly anticipated Federal Open Market Committee (FOMC) meeting later today. The Fed is widely expected to maintain interest rates at their current 23-year high of 5.25%-5.5%. However, investor focus remains glued to the central bank’s policy statement and subsequent press conference by Chair Jerome Powell. Recent hot inflation data has injected some uncertainty, with some analysts fearing a potential reduction in the projected number of rate cuts for 2024.
This hawkish tilt from the Fed could dampen market enthusiasm. Conversely, dovish signals hinting at steadying inflation and the slowing need for tighter monetary policy might propel the index further. Adding to the pre-FOMC jitters, a recent surge in oil prices has buoyed energy stocks, while a pullback in certain technology names, particularly semiconductors, raises questions about the sustainability of the recent AI-driven rally.
Technical
The 4-hour chart shows that the index currently trades at 5,237.50, reflecting a flat price action as investors await the Fed’s verdict. The technical indicators paint a bullish picture. The price sits comfortably above the 20-SMA (green line), 50-SMA (blue line) and 100-SMA (orange line), indicating a strong short-term bullish trend, with the 50-SMA recently crossing above the 20-SMA in a bullish crossover.
With the flat RSI (59.40) trading comfortably above the 50.00 price level, suggesting room for further upside, short-term trading opportunities could exist towards the all-time high of 5,257.25 should the bullish momentum persist above the SMAs. A break above the all-time high, on high volume, could offer further trading opportunities towards the 23.60% Fibonacci extension level (5,302.75) and 38.20% Fibonacci extension level (5,331.00) higher.
However, hawkish Fed signals could trigger a significant pullback, likely helping the bears challenge the 5,185.75 price level should the shorter-term SMAs give way. A break below the 5,185.75 price level, on significant volume, would bring the 5,138.25 and 5,087.00 price levels into play in the short term.
Summary
The S&P 500 Index remains buoyant ahead of the Fed’s decision, with market sentiment influenced by sectoral performance, with the FOMC meeting serving as the ultimate catalyst for the index’s near-term direction. A dovish Fed could propel the index towards fresh record highs, while a hawkish tilt could spark a correction. The technical outlook favours a breakout if the bullish momentum persists and the index surpasses the all-time high. However, a breakdown is also a possibility if the Fed adopts a more hawkish stance, pressuring the index to retest its recent support levels.
Sources: TradingView, Trading Economics, Federal Reserve, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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