The S&P500 Futures (CME: ES) recently experienced a resounding surge, rising by 1.35% in Wednesday’s trading session. This upswing follows the Federal Reserve’s pivotal decision to maintain interest rates within the 5.25% to 5.50% range, marking a 22-year high yet hinting at potential rate cuts due to substantial progress in taming inflation.
Remarkably, the index futures have soared 2.50% week-to-date, positioned to conclude a seventh consecutive week in positive territory, albeit marginally below their record high. This remarkable ascent notably defies the conventional expectation of equities struggling amid elevated interest rates. The Fed’s dovish commentary further fuelled the market’s exuberance, triggering a downturn for the Greenback while propelling the value of risk assets.
Anticipation is rife in market circles, reflected by an 89% probability, according to the CME FedWatch Tool, of an impending rate cut in March 2024. As this week draws to a close, attention pivots toward forthcoming economic indicators, notably the PCE Price Index—the Federal Reserve’s favoured gauge of inflation—scheduled for release next Friday.
Technical
The S&P500 Futures have been on a robust upward trajectory, significantly surpassing the 100-day moving average, signalling a strong uptrend after breaking out of a descending channel pattern. This rally, spanning five consecutive days with potential for a sixth, originated at 4122.25, marked by oversold conditions on the Relative Strength Index (RSI) within the channel’s lower boundary.
The rally’s vigour, backed by substantial upside volumes, is particularly noteworthy, enabling the index futures to breach both the descending channel pattern and a previous resistance level at 4637.25. With the all-time high resting at 4808.25, a level now tantalizingly close, the market sentiment leans favourably towards further gains, buoyed by dovish inclinations supporting risk assets.
However, caution prevails as overbought RSI conditions loom near the all-time high, potentially signalling an impending reversal. If bullish momentum persists, breaching the all-time high could become plausible. Conversely, should bearish sentiment take hold, the 4637.25 level could emerge as a downside focal point.
Summary
The S&P500 Futures surge, propelled by dovish Fed sentiments and poised to close a seventh positive week, defies expectations amid record-high interest rates. Yet, a technical surge near the all-time high at 4808.25 beckons caution, balancing bullish momentum with the potential for a corrective reversal.
Sources: Federal Reserve, CME, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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