SPDR S&P 500 ETF Trust (SPY) Forecast: Markets move higher as risk reduces

S&P 500 benefits on Monday from risk appetites increasing.
SPY rallies as markets price in a soft landing for the US economy.
SPY's position was also helped by buybacks and CTA funds.

Ivan Brian FXStreet

The S&P 500 (SPY) kept up its recovery rally on Monday as the index closed 0.7% higher in a broad-based advance. The tech and growth sectors were the standout performers, while energy lagged. Oil prices fell on the news of more Chinese lockdowns. This and a move lower for yields helped the Nasdaq to lead the day on Monday. The recent gain has confused some investors who had bought into the macroeconomic background.

Certainly fears of the Ukraine conflict spilling out in NATO spooked markets as did fears for the US economy, but a combination of factors served to reverse the rally. First, oil prices collapsed sharply from highs seen at the start of the Russia-Ukraine conflict. Second, Fed Chair Jerome Powell spoke bullishly about prospects for the US economy and how it could handle a rate hiking cycle. Finally, investors had over-positioned themselves, so when the expected decline did not continue, they suddenly found themselves underweight equities. This was added to by strong corporate buybacks now that earnings season blackouts had ended.

SPY Stock News

Monday was most notable for the meme stock return. GME surged 25%, AMC 44% and HYMC over 80%. The risk was back in a big way as retail investors piled back into equities. Tesla is far from a meme stock, but it does hold a massive retail following. It announced a stock split dividend on Monday that resulted in an 8% surge for TSLA by the close. Retail investors were big participants in that move too, but now that the rally has gained strength this may just be the time to fade it. Or certainly, this may be the time to exercise caution.

We take note of the increasingly hawkish predictions for the next Fed meeting in May. The Chicago Mercantile Exchange's (CME) Fed Watch tool is a benchmark for monitoring market probabilities of Fed interest rate decisions. Note below how the indicator is signaling a 73% chance of a 75-100 basis point rate at the next Fed meeting. For comparison, one month ago the probability for a 75-100 basis point base rate was a mere 15%. That implies a 50 basis point hike is a given and 75 basis points is on the table. Equity markets, especially high-growth stocks, will not react well if that plays out as predicted.

SPY Stock Forecast

A huge level is incoming at $458 that foreshadows huge resistance. The double top from February was a perfect bearish signal. Now we have a near-perfect complete retracement. Will bears return to defend the level? A break above will see technical all-time highs likely. Failure and the first support is at $446 from the 200-day moving average.

SPY 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.

GBP/USD keeps the firm tone above 1.3600

GBP/USD clings to its daily gains, although it gives back some of them and recedes toward the 1.3630-1.3620 band on Thursday. Cable’s uptick comes despite the modest bounce in the Greenback, while investors gear up for key data releases on the UK calendar on Friday.

EUR/USD treads water near 1.1670

EUR/USD gives away all its initial gains and receded to the sub-1.1700 region. The US Dollar’s late recovery has dragged the pair lower, leaving it practically unchanged following the NA session on Thursday. In the meantime, investors gear up for the release of preliminary S&P Global Manufacturing and Services PMIs on both sides of the Atlantic on Friday.

Gold holds above $4,500 as rising bond yields offset reduced Fed hike bets

Gold holds steady above $4,500 during the Asian session on Friday amid a combination of diverging forces. Reduced Fed rate-hike bets keep US Dollar bulls on the back foot and support the non-yielding bullion. However, higher US bond yields, bolstered by inflation risks stemming from volatile oil prices due to the US-Iran standoff, could limit USD losses and cap the commodity. Nevertheless, XAU/USD remains on track to register gains for the third straight week.

Bulls in control with Bitcoin heading toward $80,000, Ethereum $2,500, XRP $1.50

Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP) are extending their rallies as bullish momentum strengthens and continue to cheer the US Treasury’s decision to double its debt buyback operations. BTC has climbed nearly 20%, ETH over 25% and XRP nearly 30% so far this week.

$40 trillion debt black hole: Is a financial crisis coming?

The United States is closing in on a milestone that would have been almost unimaginable not long ago: $40 trillion in national debt. That staggering figure framed the latest episode of the Money Metals Midweek Memo, as host Mike Maharrey examined what he calls the economy’s “debt black hole” and zeroed in on a relatively obscure corner of the financial system that could become a much bigger problem: the $1.4 trillion private credit market.

$20 billion offered, $2 billion taken: Why Treasury doubled its buyback cap

The US Treasury moved off its own calendar on Wednesday, and that is the part worth sitting with. At 12:32 GMT, the department said it would at least double the size of liquidity support buyback operations in the 10-year to 20-year and 20-year to 30-year sectors, lifting the maximum from $2 billion per operation to at least $4 billion, effective September 9 and running to November 4.