S&P 500 reverses lower from 3587 highs, erodes daily gains as market digests strong US data

  • The S&P 500 has eroded all of its pre-market gains amid choppy post-strong US PMI data trade.
  • As markets weigh up whether strong data might deter the Fed from acting, the S&P 500 trades within recent ranges.

US equity markets have been choppy in recent trade, with the S&P 500 initially rallying in wake of the US cash open at 14:30GMT, to then see a further boost to its highest levels since last Wednesday in wake of strong data, only for markets to than change their minds and send the index back towards last week’s lows in the 3550s and back into the red.

S&P 500 buffeted by vaccine optimism, US/China tensions and differing views on strong US data

S&P 500 futures spent the majority of pre-US market trade in the green, boosted primarily by an increasingly optimistic feel regarding the prospect for a global economic recovery in 2021 on the back of further good vaccine news.

AstraZeneca released an update on Monday, announcing that their vaccine has an average efficacy of 70% (a fair bit lower than Pfizer and Moderna’s vaccine), although one regiment of vaccine candidates, those who received a half dose followed by a second full dose one month later, saw average efficacy of 90%.

Importantly, storage conditions are more favourable than Pfizer’s vaccine; this vaccine can be stored at normal refrigerator conditions for at least six months (vs Pfizer’s vaccine, which needs to be stored at -70 degrees Celsius and Moderna’s which can be stored in refridgerator temperature for only one month).

S&P 500 futures took a small knock prior to the cash open on the news that the Trump administration is pushing for new hard-line measures against China to prevent them from employing economic coercion.

According to the Senior officials, they want to create an informal alliance of Western nations to jointly retaliate when China uses its trading power to coerce countries and was motivated by the economic pressure that China has been putting on Australia after the country called for an independent investigation into the origins of the Covid-19 pandemic.

However, S&P 500 futures managed to hold onto reasonable gains on the day heading into the not normally widely followed Markit PMI release at 14:45GMT.

Monday’s US Markit PMI release was different, however, triggering a very large market reaction, particularly in FX markets; given how strong the data itself was, as well as the fact that it showed US inflation starting to shoot up in November, USD has seen a stunning rally, with the Dollar Index jumping from around 92.00 to above 92.50.

Over the same period of time, the S&P 500 has swung between initial post-data gains (given the strong data boosting optimism about future earnings) to trading back to flat on the day.

Given the reaction in USD, it seems as though markets are taking the view that strong data and the prospect of higher than previously anticipated inflation heading into 2021 might set the scene for a less accommodative than hoped for Federal Reserve, something which is being taken as a negative stock market valuation.

S&P 500 continues to trade within recent intra-day ranges

The S&P 500 continues to trade within a roughly 3543-3583 range. Should the bears prevail and send the index below last Thursday and Friday’s lows around 3543, the door would be opened for a retest of the 3510-3520 area, which acted as significant support/resistance from the 5 to 11 November. Conversely, should the bull prevail and push the S&P 500 higher, resistance at the psychological 3600 mark would be important, as would the beginning of last week's highs around 3620-3630.

S&P 500 futures four-hour chart

S&P 500 futures

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

Latest Forex News

Latest Forex News

Editors’ Picks

EUR/USD: Bears hold the grip, critical challenge at 1.2000

The greenback firmed up at the end of the week, closing it with substantial gains against most major rivals. Renewed coronavirus concerns and poor macroeconomic data spurred risk-off. EUR/USD is firmly bearish.


GBP/USD: Further restrictions in the UK may hit the pound

The GBP/USD pair trimmed most of its weekly gains on Friday and settled in the 1.3580 price zone, amid risk-off fueling dollar’s demand. UK GDP contracted by less than anticipated in November, Industrial Production plunged.


Gold: Further decline toward $1,800 remains on the cards

Gold failed to stage a convincing rebound this week. After losing more than 2% in the previous week, the XAU/USD pair extended its slide on Monday and touched its lowest level since early December at $1,817. 

Gold news

Darkest fefore dawn

The upcoming economic news is likely to be dreadful, and if it is not dreadful, it will be mostly ignored. This includes the release of the preliminary January PMI figures at the end of the week. Japan is extending its national emergency to another five prefectures, which collectively account for over half of the nation's GDP.

Read more

DXY breaks above key downtrend, eyes move above 91.00

USD has been strongly supported on what has shaped up to be a very much risk off final trading day of the week. Most G10/USD pairs have seen significant weakness, aside from CHF/USD and JPY/USD, given that the two currencies are also considered “safe havens”.

US Dollar Index News