S&P500 Technical Analysis | Forexlive

The FOMC
Policy Decision caused a big rethinking in the market. Until then, the market was
hoping for a less hawkish Fed as price pressures eased and was expecting some
signals of a turning point.

Instead, the Dot
Plot showed a peak rate of 5.1%, which is a bit higher than the
market expectations before the event, but the more hawkish part is that for
2024 they forecast a rate of 4.1%, which means a higher for longer
intention. Another notable thing is that they could have revised the Dot Plot
until Tuesday evening, which is after the CPI
report miss, BUT they intentionally chose not to.

The other more hawkish stuff came
from the Fed
Chair Powell press conference as he pushed back against rate
cuts bets for next year and repeated that they will “stay the course until
the job is done” to avoid the mistakes of the 1970s when the Fed prematurely
eased monetary policy and had to fight with repeated inflationary waves.

The Fed also keeps on repeating
that the labour
market is extremely tight. They won’t have confidence in lowering interest
rates until they see unemployment picking up. Even though inflation data
may continue on showing relief, the Fed clearly wants to see the labour market
to show weakness as well. To achieve this, they need a proper recession
and that’s what the bond market may be seeing. For the stock market, on the
other hand, it’s not good news as a possible overtightening from the Fed and
a serious recession are two of the worst scenarios.

There’s also some talk that the
stock market bottoms as the inflation rate peaks. But taking that into further
context shows that it does so only when other leading indicators like PMIs bottom
as well. Below you can see a chart showing this relation. This may be the
top in the “bear market rally” we saw for the last 2 months.