S&P 500 in the green having found support at 4500, as investors mull Fed policy outlook

Wall Street started Friday’s session positive, with the S&P 500 at the time of writing trading in the 4520s and up about 0.4%, having found support around 4500. While the index saw a sharp pullback on Thursday and is about 1.5% below earlier weekly highs, it still remains on course to end the week slightly in the green. Technicians might note that the index appears to have forged out a mid-4400s to 4600 ish range since the start of February. Some traders might be tempted to play this range in the near term as they await more clarity on central bank policy.

US government bond yields took a breather after Thursday’s post-hot-US inflation data/hawkish Fed commentary surge, with the 10-year yield dropping 2bps back to the 2.0% level, easing pressure on duration-sensitive equity market sectors. As such, big tech and growth names, the biggest losers on Thursday, were close to flat on Friday. The Nasdaq 100 was subsequently trading about 0.2% higher near the 14.75K level and despite a more than 2.0% pullback from earlier weekly highs, remains on course to end the week broadly flat. The Dow, meanwhile, was trading about 0.5% higher in the 35.4K area and on course for a small weekly gain of about 0.9%.  

The major equity market theme remains the timing and pace of Fed monetary tightening. In wake of Thursday’s January inflation figures, which showed the headline rate of US Consumer Price Inflation hitting a near-40 year high at 7.5%, as well as hawkish comments from Fed policymaker James Bullard, who called for 100bps of tightening by July, a 50bps hike in February has become the market’s base case. But some analysts have pushed back against this notion, citing more cautious commentary from other Fed policymakers in wake of the CPI data. This uncertainty is likely to keep equities choppy in the coming weeks ahead of the Fed’s next meeting.