S&P 500 bounces back after posting new yearly lows just above 4,100

• In a choppy start to the month, the S&P 500 hit new yearly lows just above 4,100.
• The index has since recovered to the 4150 area, although investors are cautious ahead of key event risks.
• The Fed is expected to raise interest rates by 50 bps this week and official employment data is due on Friday.

In a choppy start to the month, the S&P 500 Index hit a new yearly low just above the 4,100 level shortly after the US open, only to later retreat some 50 more points. At current levels near 4,150, the index is trading up around 0.6% on the day, with investors focused on a flurry of key upcoming event risks, including Wednesday’s Fed meeting and Friday’s release of the US labor market report for April.

While investors will welcome Monday’s bounce from yearly lows, most will not bet on the recovery extending to mid-April levels around 4400. The Fed is expected to raise interest rates by 50 bps this week, as well as signaling further rate hikes of at least 50 bps in upcoming meetings as he seeks to get interest rates back to around 2.50% by the end of the year to control inflation. The bank is also expected to announce its quantitative tightening plans.

Prior to this, longer-dated US bond yields are back in front, with the 10-year bond looking to break back above 3.0% for the first time since late 2018. If this trend continues this week , that will create a particularly difficult backdrop for high price-to-earnings stocks, which includes most large-cap growth and technology stocks, to continue to rally.

And it’s not just higher interest rates and a tightening by the Federal Reserve that should worry investors. Growth concerns have been in the spotlight at the start of the week, with China’s official April PMI surveys released over the weekend and below expectations by some margin, and the latest disappointing figures from the US ISM Manufacturing PMI did not help. The overall index fell to its lowest level since 2020, just as the supplier delivery sub-index hit a five-month high to reflect worsening delivery schedules from the Russo-Ukrainian war and China’s lockdowns worsen supply problems. the global supply chain.

The most recent index also suggested that businesses continued to struggle to hire/retain workers in April, suggesting that while labor market slack indicators released in Friday’s official labor market report may remain strong, the headline number of NFP could be weak.

Looking at the other major US indices; The tech-heavy Nasdaq 100 Index last traded around 0.6% higher, though it also hit new yearly lows on Monday and remains unable to break above the 13,000 level. The Dow meanwhile, was last trading about 0.3% higher, though still holding above 33,000 and about 2.5% above previous yearly lows.

Technical levels