Fundamental Overview
The S&P 500 yesterday sold off aggressively following the FOMC decision as the market perceived it as more hawkish than expected.
Overall, apart from some slight tweaks, the Fed was in line with the market’s expectations, and the selloff might have been an overreaction. There’s lots of noise during such big events, so be careful of that.
The data is what really matters now as it will decide what the Fed is going to do. It will likely take just one soft CPI report in January to see the market reacting in a dovish way and print new all-time highs.
For now, the conditions for further upside remain in place. In fact, Trump’s policies should be a positive driver for growth in 2025 and with the Fed remaining in an easing cycle, growth should remain positive and might even accelerate as seen already recently by the Atlanta Fed GDPNow indicator.
The risk in 2025 is of course inflation and the Fed’s reaction function. Right now, the Fed’s reaction function is that a strong economy would warrant a slower pace in the easing cycle and not a tightening. That should still be supportive for the stock market.
If the Fed’s reaction function were to change to a potential tightening, then that will likely trigger a big correction in the stock market (if not even a bear market given the stretched valuations) on expected economic slowdown. For now, we remain in a “buy the dip” environment.
S&P 500 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the S&P 500 sold off from the highs following the FOMC decision. The closest support we have is around the 5855 level. If the price extends the drop into the level, we can expect the buyers to step in with a defined risk below the level to position for a rally into a new all-time high. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the next support around the 5720 level.
S&P 500 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have already some dip-buyers entering the market trying to fade yesterday’s reaction. Although there’s no clear support around these levels, some aggressive buyers might still step in here with a defined risk below the yesterday’s low to position for a rally into new highs. The sellers, on the other hand, will look for the low to be broken to increase the bearish bets into the 5855 support.
S&P 500 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much else we can add here as we are trading right in the middle of two key levels. The red lines define the average daily range for today.
Upcoming Catalysts
Today we get the latest US jobless claims figures, while tomorrow we conclude the week with the US PCE data.
