SPDR S&P 500 ETF Trust News and Forecast: Why did SPY bounce on Wednesday?
- Stock markets recover some ground on Wednesday as yields fall.
- Inflation readings remain high with more to come.
- Oil and gas prices continue to spike as Powell turns doveish.
Equity markets staged a strong recovery on Wednesday as markets took some comfort from the recent collapse in bond yields brought about by the Russia-Ukraine conflict. The yield on the US 10-year had been above 2% as recently as February 25 before the conflict saw a dramatic repricing with the yield briefly trading below 1.7% on Tuesday. Bond markets have repriced central bank hiking cycles, and this finally had some follow-through for equity markets on Wednesday.
It was a broad-based advance with all sectors gaining. The energy sector (XLE) was not the biggest gainer. That honor went to financials (XLF), which gained 2.6% on the day. The consumer sector (XLC) underperformed but still gained 0.86% on Wednesday.
S&P 500 News
Fed Chair Jerome Powell made his last speech before going into blackout ahead of the March meeting. He gave markets exactly his speech from that meeting. A 25 basis point rise will be the result, and equity markets at least liked the certainty of his speech. In Europe, things took a more hawkish stance with ECB Chief Economist Lane saying the ECB would take into account recent Russia-Ukraine developments for its March staff projections. This will see a massive hiking of inflation predictions as energy prices soar. Europe faces an increasingly bleak outlook, soaring inflation, slowing growth or even a recession in 2023. This has seen euro/USD trade below 1.11 for the first time in nearly two years.
S&P 500 Forecast
We have previously pointed out the predictive nature of the US yield curve in forecasting a coming recession. The curve continues to flatten despite falling yields. Bond traders are usually more macro-orientated than their equity brethren, and they are taking an increasingly dim view of prospects for the US economy. The move yesterday stopped at our resistance at $438, and this remains the pivot for today. Above and we can think of $446, but below and it is back to bearish moves. Longer-term the outlook remains challenging with a test of $400 looking increasingly likely. Slowing growth, soaring energy and inflation will eventually hit sentiment again.
S&P 500 chart, daily
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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.
