S&P 500 reverses Wednesday’s post-Fed gains, back below 4,200

  • US stocks have largely reversed Wednesday’s post-Fed rally, with big tech names leading the decline as yields rose.
  • The S&P 500 recently fell back below the 4,200 level, taking its losses to more than 2.5% or 100 points.

The post-Fed jubilation on Wednesday has proven short-lived as all three major US equity indices have already given back most of yesterday’s gains two hours after the opening of today’s session. Yes, Fed Chairman Jerome Powell has ruled out 75 basis point rate hikes at upcoming meetings, allaying some of the sharpest fears about rapid Fed tightening in the near term and, yes, this has pushed back the short-term US yields from highs.

But the long end of the US yield curve tells a bullish story. The 10-year bond rose more than 10 basis points on Thursday to break above the 3.0% level for the first time since December 2018, while the 30-year yield rose 14 points. Clearly, bond markets have interpreted Powell’s Wednesday message as a sign that risks are tilting towards a higher final Fed rate and equity markets are taking note.

The Nasdaq 100 tech index, sensitive to long-term bond yields, is trading down nearly 4.0% on the day, near the 13,000 level, a sharp reversal from Wednesday’s close above 13,500. Meanwhile, the S&P 500 recently dipped back below 4,200 amid a 2.5% drop so far for the day and last traded more than 100 points since Wednesday’s close at the 4,300 level. The Dow was last trading just under 2.0% at the 33,400 area, having pulled back lower from a test of its 21 and 50-day moving averages at the 34,070 area on Wednesday.

As markets continue to digest the implications of Wednesday’s Fed meeting, the focus will start to shift to the release of the official US labor market report for April on Friday. With inflation risks in the spotlight and market sentiment as a driver at the moment (as higher inflation means a more aggressive Fed), traders will closely scrutinize the report for signs of accelerating growth. the salaries. If the data is interpreted as a dovish reading for the Fed, it could be a nasty end of the week for US equities.

Technical Levels

Source: Fx Street

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