April market outlook: Bearish across the board as global tension and Oil crisis continue

March has been one of the worst-performing months in recent years for the US and international financial markets as conflict in the Middle East continues to rage on. This is a sharp contrast to new all-time highs made by major US indices earlier this year. In fact, the S&P 500 is down roughly 9% from its high this year and has lost more than 7% in the month of March alone. As the conflict continues and negotiations remain out of sight, we expect that bearish momentum will persist in April.

Major Oil shock

Inflation and interest rate

Since the conflict is barely a month old, its effects are not yet factored into the official inflation data. That said, since the increase in energy prices directly affects the cost of most goods and services, we expect inflation to spike as early as April and continue to rise in the following months as long as the conflict rages on, and worse if it escalates. 

In addition, since inflation is expected to spike, the US Federal Reserve (Fed) and many other central banks around the world are likely, at the very least, to consider a potential policy rate hike to counter the inflationary effect of elevated energy prices (particularly if this conflict drags on for months). This likely future rate hike is already causing bearish momentum in the equities market, as major indices around the world are now significantly discounted versus their pre-conflict levels.

Market analysis

Sigmanomics’ April forecast: Strong bearish bias (based on 28-day forecast)

The S&P 500 index has just recently broken its previous support level at around the 6,500 – 6,550 level and went on to close below 6,400 on Friday. This represents one of the worst months for the index as it lost more than 7% in March alone. Currently, its nearest support level is around 6,200 and if it breaks this zone, it will then face a major psychological support level at the 6,000 area. Furthermore, if the conflict drags on and crude oil surpasses $120 per barrel, we believe these will serve as a catalyst for it to break the 6,000 area.

At Sigmanomics, our projection tool forecasts a strong bearish momentum over the next month (April) and we expect SPX to continue to decline towards its nearest support zone.

Recent close: 45,166.64
Nearest resistance zone: 45,600 to 46,000 level
Nearest support zone: around the 44,000 level
Major support level: around the 42,000 level 

Sigmanomics’ April forecast: Strong Bearish Bias (based on 28-day forecast)

The Dow Jones Index mirrored the S&P 500 as it decisively broke down its previous support at 45,600, representing the sharp bearish sentiment as it points to further downward moves in the coming days and weeks ahead. We expect the index to trade between 42,000 and 45,000 in April unless there are meaningful improvements in the situation in the Middle East. Likewise, if conflict rages on and crude oil prices sustain their elevated levels, then a break of 42,000, while not imminent, is still possible.

Similar to our S&P 500 outlook, our forecast for the Dow Jones also points to strong bearish momentum continuing into April, with the index likely extending its decline toward the next support zone.

April market forecast: 

Best-case scenario: Geopolitical environment improves and DJI rallies above 46,000.
Base scenario: DJI moves between 42,000 and 45,000 in April.
Worst-case scenario: DJI breaks below its major support level of 42,000 in April.

Recent close: 23,132.77
Nearest resistance zone: around the 24,000 level
Nearest support zone: around the 22,700 level
Major support level: around the 22,000 level

Sigmanomics’ April forecast: Strong bearish bias (based on our 28-day forecast)

The Nasdaq 100 index, representing some of the world’s biggest tech stocks is particularly affected by the unfavorable market sentiment. Note that during a crisis such as this, tech stocks are usually one of the most volatile and we expect major price swings to continue in the short to medium term. For now, the next support level is relatively near at around 22,700 and its major support level is situated at 22,000.

In line with our SPX and DJI outlook, our forecast tool also overwhelmingly indicates bearish momentum in the Nasdaq 100 that will continue throughout April, with the index likely extending its decline toward the next support zone in the coming days.
April Market Forecast: 

Best-case scenario: A meaningful de-escalation and negotiation that causes NDX to rally back above 24,000.
Base scenario: NDX moves between 22,000 and 24,000 in April.
Worst-case scenario: NDX breaks below its major support level of 22,000 in April.

Overall, there is an undisputedly bearish market sentiment on the above-mentioned major US indices. If no significant improvement happens in the ongoing conflict in the Middle East, we expect these indices (and most international financial markets) to continue trending lower as fears of much higher inflation in the coming months may very well trigger a drastic policy rate response from central banks around the world.