Federal Reserve’s Hawkish Stance Drives Market Volatility and Shifts Economic Outlook
Federal Reserve’s Hawkish Stance Alters Market Sentiment
The S&P 500 experienced a sharp decline on Wednesday as the Federal Reserve signaled a more hawkish outlook for 2025. The Federal Open Market Committee (FOMC) indicated only two interest rate cuts for the year ahead, totaling 50 basis points, shifting market expectations dramatically.
Stagflation and Economic Policies in Focus
As we approach the new year, stagflation looms as a potential theme. Former President Donald Trump may address this challenge with unprecedented deficit spending, aiming to boost the economy. Meanwhile, stock market bulls are banking on the artificial intelligence (AI) boom to sustain momentum and counterbalance economic concerns.
Market Recovery Amid Volatility
After the post-FOMC drop, risk appetite showed signs of improvement. Overnight, index futures rebounded, and the Asia-Pacific region witnessed a rally led by Japan’s Nikkei 225. The Bank of Japan’s decision to maintain current interest rates caused the yen to tumble, sending the USD/JPY pair soaring to the 157.00 range. However, the Dow Jones Industrial Average’s persistent decline raises broader market questions.
The Dow’s Historic Losing Streak
The Dow Jones Industrial Average has marked its first 10-day losing streak since 1974. From its peak, the Dow has plunged by approximately 2,900 points in just two weeks. This run underscores the fading bullish momentum across value stocks more broadly.
Market Breadth Highlights Weaknesses
Despite nearing record highs earlier this week, fewer than 39% of S&P 500 stocks are trading above their 50-day moving averages. Additionally, only about 30% of S&P 500 stocks have outperformed the index year-to-date. This phenomenon has occurred only once before, during the 1998-1999 Dot-com bubble. The reliance on a few tech giants raises concerns about market sustainability.
S&P 500 Technical Analysis
Rebound Within Long-Term Bullish Trend
The S&P 500 futures rebounded after Wednesday’s drop. From a technical perspective, this aligns with the index’s long-term bullish trend. Sellers likely took profits near key support zones, enabling the bounce.
Key Levels to Watch
The index found support within the 5893-5927 range, which acted as resistance throughout October before breaking higher. A decisive break below this zone could lead to further declines to 5805 or 5721, the July high. A more significant correction might target the long-term trend line and the 200-day moving average near 5560.
Bears Eye Critical Zones
For bearish traders, the broken support area between 6040-6053 is a key level. This zone, tested multiple times, has become a focal point for stop orders. Additionally, the 6,000 level represents another important threshold aligned with the broken channel trend since August.
Conclusion: Navigating Market Uncertainty
The S&P 500’s recent movements highlight heightened uncertainty and volatility. With a hawkish Federal Reserve, potential stagflation, and structural market weaknesses, investors face a challenging landscape. Monitoring critical levels and maintaining a balanced perspective will be crucial in the months ahead.
Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.