S&P retests support

2023년 10월 20일

US stock index futures were sharply lower in early trade on Friday, adding to losses from the last three sessions. Looking at the daily chart we can see another retest of support at the bottom of the upwardly-sloping trendline. The catalyst for yesterday’s move came in a speech from Fed Chair Jerome Powell. He reiterated his opinion that inflation was still too high while interest rates were not.

Traders are taking that as an indication that the US central bank is prepared to raise rates should data continue to indicate robustness in the US economy. That’s certainly the case at the moment where we’ve recently seen unexpectedly strong payrolls, retail sales, consumer demand and an uptick in headline inflation. Powell was explicit when he said that he expects growth to cool and the labour market to soften for the Fed to hit its 2% inflation target.

It has been a difficult week for global equities which sold off after a strong start on Monday. It would be easy to blame the escalating hostilities in the Middle East for stock market weakness. But a quick scan of the charts dispels any real correlation between the two. Instead, there’s a battle raging between bulls and bears which pivots around what the Fed will do next.

Bond markets are proving to be a significant headwind. This week the yield on the 10-year Treasury note hit a new milestone, and fresh 16-year high, of 5%. Some are saying that this could be the turning point for bonds, as locking in yields that high is too much of an opportunity to miss. If so, that would be a great help for the stock market bulls.