S&P 500 pulls back slightly after strong boost in sentiment post-Fed

• The S&P 500 pulls back slightly during the European session on Thursday after rising more than 2.20% the previous day.
• Despite the Fed’s aggressive tone, sentiment remains positive. Powell defines the US economy as “very strong.”
• The focus remains on news about the war between Russia and Ukraine.

The index S&P 500 is pulling back during the European session on Thursday after reaching new 13-day highs at 4,375 points after the FOMC decision on Wednesday. At time of writing, the index is down towards 4,340 points, losing -0.50% on the day.

This decline can be seen in the VIX index, the indicator of fear on Wall Street, which rises slightly towards 27.00 points, gaining about 1.40% on the day. Even so, VIX remains off recent highs of 37.50 set a couple of days ago, reflecting improving market sentiment.

The index S&P 500 gained more than 2.20% the day beforedriven by positive market sentiment despite the FOMC’s aggressive monetary policy decision. The Federal Reserve decided to raise its rates by 25 basis points for the first time since December 2018, just as the markets expected. The updated summary of economic projections also showed that monetary policymakers they expect to increase the rate six times more by the end of the year.

The Chairman of the Federal Reserve, Jerome Powell highlighted in his press conference that plans to reduce the balance sheet were well advanced and that the start could come as early as the next FOMC meeting in May.

Despite the aggressive outlook, the FOMC Chairman, Jerome Powell assured the markets that they would control inflation without damaging economic activityallowing risk appetite money flows to dominate the markets.

Stock indices responded to Powell’s characterization of the US economy as “very strong” with an “extremely tight” labor market.

“We will not allow high inflation to take root. That cost is too high,” promised the Fed chairman.

In addition, some positive news around Ukraine, UK military intelligence sources reported on Thursday, that the Russian invasion has largely stalled on all fronts, seem to support the sentiment. “Russian forces have made minimal progress on land, sea or in the air in recent days. Ukraine’s resistance remains firm and well-coordinated”, they reported.

On the other hand, some mixed news on the same topic seems to limit optimismleading the S&P 500 to its current pullback.

According to the news, Russia believes that they have made significant progress towards a ceasefire, but Ukrainian officials disagree with this view. In the opinion of the French Foreign Minister, Jean Yves Le Drian, Russia only “intends to negotiate with Ukraine”. Furthermore, an adviser to Ukrainian President Volodymyr Zelenskyy said on Thursday that Ukraine’s position on negotiations with Russia has not changed, as reported by Reuters. “The borders of Ukraine as of 1991 must be recognized“, added the adviser.

Market participants now await the US economic calendar, with the release of the Philadelphia Fed Manufacturing Index, the usual weekly data for initial jobless claims and industrial production. Aside from this, investors will take cues from new developments around the Russia-Ukraine war and broader market risk sentiment.

S&P 500 technical levels