SPDR S&P 500 ETF (SPY) News and Forecast: Rescue buoys in short supply

• Risk assets continue to suffer with Bitcoin the latest victim.
• Bond market pencils an extra 50 basis points of hikes for 2022.
• Recession odds now increase for the US and world economies for 2023.

This is not exactly an uplifting piece, but the world in 2022 certainly has not exactly been plain sailing. We have had war in Europe for the first time in nearly 70 years, inflation, the legacy of the pandemic and supply chain issues. Just when everyone thought we would have the Roaring Twenties following the pandemic, we are instead moving to a harsher global environment with soaring energy and food costs, rising geopolitical tensions and now clearly overinflated financial markets. 

SPY stock news

Friday was the moment that appears to have clarified our worst fears. This is now set to become a proper bear market. While the Nasdaq has long been in one, the Dow and S&P had narrowly avoided such a fate. It is important, because a bear market usually falls on average nearly 40%, meaning we are only halfway through. With a recession now looking more likely, that also adds to investors' woes. A bear market without an associated recession only falls on average 25%, but with inflation raging and Friday's equally poor Michigan Consumer Confidence reading, the market is now more accepting of the inevitable 2023 recession. That means more pain for risk assets and equity markets. The only hope is if the Fed baulks once the economy turns south. The Fed is unique among the main central banks with its dual mandate of price stability and employment. The ECB and BOE are solely focused on fighting inflation. This increases the risk that this time it is different, and the Fed will climb down. If all other central banks are on the tightening trail, it is likely to stick the course.

SPY stock forecast

The SPY will open lower on Monday and likely right at the key Fibonacci retracement at $380. This becomes the last chance saloon to avoid an official bear market. Given current sentiment, it is unlikely to hold. Fed speakers will take to the airwaves this week and will be more hawkish. The yield curve has inverted this morning, and the US 2-year yield is up another 16 basis points. 

A break of $380 then brings the September 2020 high at $358 into line as the next major target. $380 may not go on the first test, but there is plenty of room in both the Relative Strength Index (RSI) and the Money Flow Index (MFI) before the market looks oversold. 

SPY chart, daily