On Thursday, the S&P 500 experienced a surge, resulting in a rally of 1.33% and a close of 4,146, which is the highest it has been since February 15. This was due to a positive sentiment following wholesale inflation data that was weaker than anticipated. The consumer discretionary and communications sectors saw significant gains while the real estate sector performed poorly. However, there is caution as the equity benchmark is now just below cluster resistance near the psychological level of 4,200, which may attract sellers and halt the upward momentum, potentially leading to a pullback.
The trading session started with a surge in sentiment due to the March Producer Price Index (PPI) reporting a figure of 2.7% year-on-year, lower than the expected 3.0% year-on-year, and the lowest reading since January 2021. This continuous decline in wholesale prices will lead to a reduction in inflationary pressures in the economy over the next few months, thereby reducing the requirement for further rate increases. Consequently, it is anticipated that the tightening campaign of the Federal Reserve may come to an end soon, possibly following one final 25 basis points hike at the May Federal Open Market Committee (FOMC) meeting.
When the Federal Reserve decides to halt its actions, traders will shift their focus towards the size of impending monetary policy reversals and interest rate cuts. Initially, this situation could have a somewhat positive effect on risk assets but in the longer term, it is unlikely to be as beneficial considering that any easing by the central bank would most likely be a response to a declining macroeconomic environment and increasing risks of recession. In such an environment, corporate earnings and stock prices are unlikely to be supported.
The upcoming first-quarter earnings season, which is anticipated to commence on Friday, will be the primary focus with regards to short-term catalysts. JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) are scheduled to release their results in the morning prior to the opening bell, thereby garnering significant attention. To find out what Wall Street expects from each company in terms of earnings per share (EPS) and revenue, refer to DailyFX’s recently introduced earnings calendar.
Commercial and investment banks, being key players in the capital markets as lenders and deal-makers, possess a prime vantage point of the economy. In light of the recent industry turbulence that resulted in SVB and SBNY’s collapse, traders should meticulously scrutinize not only their financial disclosures but also their forward guidance for insights.
Several significant corporate earnings reports are on the horizon.
The prevailing sentiment indicates that the Bank of Canada (BoC) will exercise prudence by adopting a watchful stance, while reserving the option to recommence its policy of tightening should the inflationary environment deteriorate or if new data warrants it. This inclination is expected to bolster the Canadian dollar in the short run.
S&P 500 TECHNICAL ANALYSIS
Following a recent rally, the S&P 500 has approached a cluster resistance zone near the 4,200 level. Should prices surpass this technical barrier in the near future, an increase in buying momentum could occur, leading to a potential move towards 4,310 – which represents the 61.8% Fibonacci retracement of the decline observed in 2022.
In the event of a decline in the S&P 500, two levels of support may be identified: initial support at 4,100 and subsequent support at 4,075. If the index continues to weaken, attention may shift to a level slightly above the 50-day simple moving average, namely 4,035. Conversely, if the S&P 500 rises instead of declining further, this may be interpreted as a sign of strength.