S&P 500 ETF Trust SPY Stock News and Forecast: Counter-trend rally awaiting the Fed Interest Rate decision

S&P 500 treads water ahead of imminent Fed decision.
SPY volatility drops as investors take to the sidelines.
Fed decision due on Wednesday with big 50 basis point interest rate hike widely expected.

Ivan Brian FXStreet

The main US equity indices struggled for direction on Tuesday as investors largely stayed on the sidelines before the Federal Reserve raises interest rates on Wednesday. The Fed is expected by all to raise rates by 50 bps when it meets this evening. Market have largely priced in this hike and are pricing in 3 more aggressive 50 bps rate hikes this year. Any deviation from Jerome Powell and the FOMC in its press conference will see markets whipsaw violently as investors reposition.

S&P 500 (SPY) stock news: All about the Fed

Little to report on Tuesday with some initial selling pressure quickly seeing short covering and an afternoon rebound for the main indices. We are unlikely to see too much action today before the Fed decision. Actually, the press conference will be the main event. Recent increasingly hawkish commentary has seen the bond markets pencil more 50 bps rate hikes for the year.

US CPI is still increasing as the latest data for March showed and employment growth is strong with companies struggling to fill vacancies. However, the last US GDP report was unexpectedly weak due to the surging dollar and sanctions hitting the trade balance.

Source: CMEgroup.com

The above shows the near-certainty of a 50 bps rate rise this time out. Pushing the calendar out further we see that by December markets are penciling in some 275 bps of Fed interest rate hikes (78.6% probability).

Source: cmegroup.com

SPY stock forecast

We have already mentioned positioning and sentiment are weak and so a counter-trend rally may be inevitable. However, we also note growing expectations of this rally and so favor a frustration move lower to smoke out early longs. Then the rally can progress. This would entail the SPY to move to $400 or just below.

This is just a feeling not based on technical evidence, but the SPY has already put in a lower low to confirm the 2022 bearish trend. Above $420 we would expect the rally to continue to test resistance at $448.

SPY stock chart, daily

Author

Ivan Brian

FXStreet

Ivan Brian started his career with AIB Bank in corporate finance and then worked for seven years at Baxter. He started as a macro analyst before becoming Head of Research and then CFO.

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