Weekly Market Update & SPY Technical Analysis
Markets saw their strongest sell-off day in months last week after Fed’s Kashkari floated the idea of leaving interest rates unchanged this year. His comments about the lingering inflation and more necessary economic development have all been heard before, but his reference to not cutting interest rates in 2024 was a shocker to the market. The market rally that started in October of last year has been built on the anticipation of multiple interest rate cuts this year. This first cut, which was supposed to be in March, still hasn’t come, and odds of a rate cut in the June FOMC meeting have declined to about 50% thanks to sticky inflation. This makes this week’s CPI and PPI reports extremely vital to markets since they will update traders on the status of inflation on the consumer and producer side. Inflation has fallen from a high of 9.1% to a low of 3.0% in the last 24 months, but over the last 12 months it has ranged between 3.0-3.7%. The Fed’s inflation target is 2.0% and they have made it clear that they will await that target before shifting their policy so this week’s CPI report needs to move in that direction or else it may send more shockwaves to the market.
Other economic factors such as the resilient U.S. labor market and strong consumer have contributed to the sticky inflation. Last week’s unemployment report showed unemployment fell to 3.8% in the U.S., which remains at an impressively historic low. No one thought that unemployment would remain this low during such a high interest rate period, which is a bittersweet result considering it’s not helping the case of inflation as consumers still have buying power. The Consumer Sentiment Index this week will give a preliminary reading on how consumers feel about the economy. This number has climbed from a low of 50.0 to a high of 76.9 in the last 12 months, once again proving that The Fed’s soft-landing attempt is working out as planned.
SPY technical analysis:
SPY’s sell-off on Thursday was influenced primarily by Fed’s Kashkari’s comments about leaving rates unchanged. The decline reached a low of 512.40 before bouncing, making that our main support coming into this week. Buyers need to defend that level to avoid a further sell-off and further break of the uptrend. Resistance in focus is 521.90, but the ultimate breakout remains at 525.85 into all time highs.