Basic overview
The S&P 500 has been under pressure since the last FOMC meeting as the Fed delivered a hawkish surprise via the dot chart. In fact, the midpoint showed only one rate hike this year, and some of these hawkish members planned to raise rates multiple times (the consensus was looking for no cuts or hikes this year). By anticipating higher interest rates, the Fed has effectively adopted a short-term hawkish bias.
The market has increased bets on an immediate rate hike with the expectation of a 36 basis point tightening of monetary policy by the end of the year. There is a 34% chance of interest rates actually rising in July and a 68% chance of a move in September.
The signal is that the Fed is finally looking to fulfill its mandate of price stability and return inflation to the 2% target it has been missing since 2021. If the data suggests they need to raise inflation, they will do so.
As the Fed tightens, it will be difficult for the stock market to rise as strongly as it has in the past two months (risk/reward tilted toward the downside). At best, I expect prices to remain in a wide range, and at worst, to correct to January 2026 levels.
To gain some decent upside momentum, the S&P 500 will need weak US data in the coming weeks to trigger a cautious repricing that pushes real yields and the US dollar lower, effectively easing financial conditions in the short term. On the other hand, upward surprises in the data are likely to put more downward pressure on the stock market.
Technical analysis of the S&P 500 – daily time frame
Standard & Poor’s 500 – daily
On the daily chart, we can see that the S&P 500 is still trading around the gap created after the weekend following the US-Iran deal. We may see more range-bound price movement in the future unless US inflation data suddenly starts to trend downward leading to a pessimistic repricing in interest rate expectations. There’s not much we can glean from this time frame, so we need to zoom in to see more details.
S&P 500 Technical Analysis – 4 Hour Time Frame
Standard & Poor’s 500 – 4 hours
On the 4-hour chart, we have a bearish trend line outlining a bearish structure. If we get a pullback to the trend line, we can expect sellers to rely on it with risks set above it for a drop to the 7,200 support level. On the other hand, buyers will want to see the price break higher to increase bullish bets to the 7650 resistance level targeting new highs.
S&P 500 Technical Analysis – 1 Hour Time Frame
Standard & Poor’s 500 – 1 hour
On the 1-hour chart, we can see the price consolidating in a narrow range between the 7410 support and 7495 resistance. Market participants will likely continue to play the range by buying at support and selling at resistance until we get a breakout on either side. Red lines define Average daily range For today.
Upcoming stimuli
todaywe get US unemployment claims data and the US personal consumption expenditures report. Tomorrow, we wrap up the week with the University of Michigan’s final Consumer Confidence Survey.
