Market Analysis

S&P 500: Dropping ahead of US Federal Reserve interest rate decision

European stock markets were under pressure at the start of the week. The latest economic data have pointed to a slowdown in the world economy, in a context of great uncertainty about several factors that weigh on investor sentiment, namely the US-China trade war and doubts about the agreement on the Brexit.

In the US, the trend was also downward as investors avoid stocks fearing the US Federal Reserve (Fed) might overshoot on monetary policy tightening. Now the focus shifts to the last meeting of the US Fed on 2018 where is widely expected by market analyst an interest rate increase by 25 basis points (bps) ranging from 2.25% to 2.5%. However, the Fed remains under pressure from President Donald Trump, who criticized the central bank for “even considering” another interest rate increase, citing “virtually no inflation” and slowing growth in China.

The preliminary Markit US Manufacturing PMI fell to 53.9 in December, comparing to 55.3 registered in the previous month and missing analysts’ forecast of 55.1. The reading pointed to the slowest expansion in factory activity since November of 2017, as new orders and employment rose at a slower pace, preliminary estimates showed. In addition, the near-term outlook has become less favourable.


Top S&P 500 Gainers and Losers yesterday:

AO Smith (2.34%), Stanley Black & Decker (1.37%), Hartford Financial Services Group (1.26%) among the top S&P 500 gainers for the session.

Xerox (-12.92%), WestRock (-9.42%), Packaging (-7.17%) were among the worst S&P 500 performers of the session.


Since the beginning of 2018 until last Monday close, the US index remains underwater with a loss of more than 4.5% and since the start of December dived in excess of 8.5%. Nonetheless, the week began on the left foot with a drop of over 1.5% and on the daily basis closed in the red with a loss of 1.54%. Furthermore, the S&P 500 is in a bearish phase since early December.

On the last Monday session, the US index tried to rise but found enough selling pressure near 2,613.25 to reverse and closed near the low of the day, in addition, managed to close below Friday low, which suggests a strong bearish momentum.

The stochastic is showing an oversold market although is still displaying a strong bearish momentum and is below the 50 midline.

The S&P 500 ended November on a positive note and December seemed to kicked-off with the right foot due to the gap up of 1.97%, however, was unable to break above the daily resistance at 2,808.50. Since the stall at the daily resistance, the US index has been in a downward spiral and trading near the year-to-date low at 2,528.75 made in February. Yesterday, the S&P500 succeed in close above the daily support at 2,543.00 and managed hold above the year-to-date low, which should act also as support. However, if S&P 500 below these two levels may face another dive toward 2,488.75 or if it holds may set the stage for an upward correction toward 2,697.75, either way, looks like it is closing 2018 in the red.

Usa500 is a CFD written over S&P 500 futures.


Usa500 Dec ’18 Daily Candlestick Chart

Usa500 Dec ’18 Daily Candlestick Chart 


Market Events to Watch:  

Wednesday, December 19 at 19:00 GMT (14:00 ET): The US Federal Reserve (Fed) is scheduled to release the interest rate, which is expected to rise to 2.5%, comparing to the previous rate set at 2.25% on the last Federal Open Market Committee (FOMC) meeting. Higher interest rates make borrowing more expensive, slowing economic activity and curbing price inflation. There have already been slowdowns some sectors in the US, such as home and car sales, where higher interest rates have led some price-conscious consumers to pull back.

Following the Fed’s rate decision, the FOMC releases its statement regarding monetary policy. The statement may influence the volatility of USD and determine a short-term positive or negative trend. A hawkish view is considered as positive for the USD, whereas a dovish view is considered as negative.

Wednesday,  19:30 GMT (14:30 ET): The Federal Open Market Committee (FOMC) is scheduled for a press conference. The press conference is about an hour long consisting of two parts; the first a prepared statement is read and then the conference is open to press questions. The questions often lead to unscripted answers that may create heavy market volatility.

Friday, December 21, 13:30 GMT (08:30 ET): The US Bureau of Economic Analysis is scheduled to release the Gross Domestic Product (GDP) Annualized in the third quarter, which is expected to come in unchanged at 3.5%, the same as registered in the previous period. The GDP Annualized is a gross measure of market activity because it indicates the pace at which a country’s economy is growing or decreasing. Generally, a high reading or a better than expected number is seen as positive for the USD, while a low reading is negative.

Friday, December 21, 13:30 GMT (08:30 ET): The US Census Bureau is scheduled to release the durable goods orders in November, which is expected to rise to 1.2%, comparing to the -4.4% registered in the previous period. The durable products often involve large investments they are sensitive to the US economic situation. The final figure shows the state of US production activity. Generally, a high reading is positive for the USD, while a low reading is negative.

Friday,  15:00 GMT (10:00 ET): The US Bureau of Economic Analysis is scheduled to release the Core Personal Consumption Expenditure – Price Index year-on-year in November, which is expected to rise to 1.9%, comparing to the 1.8% registered in the previous period. The “Core” excludes seasonally volatile products such as food and energy in order to capture an accurate calculation of the expenditure. It is a significant indicator of inflation. A high reading is positive for the USD, while a low re


Written by Hugo O’Neill, External Analyst


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