SPX500_m pauses recent climb after hawkish Fed comments

The S&P 500 are easing lower at the time of writing, as markets digest the latest policy signals out of the FOMC.

This benchmark US stock index flirted with the 4,400 level ahead of the Fed’s policy statement, dot plot, and economic forecasts, before pulling back.

The SPX500_m’s 14-day relative strength index (RSI) is also attempting to clear some froth after recent stellar gains, with the RSI looking to dive below the 70 threshold that denotes “overbought” conditions.

 

What did the Fed do/say?

The Fed left its interest rates unchanged, as widely expected.

However, markets were surprised by what’s to come out of the US central bank in the future.

The Fed indicated, via its dot plot, that there were potentially TWO more 25-basis point (bp) rate hikes to come later this year.

Markets had, prior to this week’s meeting, only expected just one more 25-bp hike for the rest of 2023.

The Fed also expected a stronger economy going forward, as the central bank’s staff made upward revisions to both GDP and inflation forecasts, while pencilling in a lower unemployment rate.

 

How did the markets react?

Such a hawkish outlook has since prompted the US dollar to rebound, while dragging spot gold below a key support level (100-day simple moving average).

Typically, risk assets such as stocks would shudder at the thought of US interest rates moving higher.

However, for the S&P 500 specifically, after some initial volatility, it did end Wednesday’s session with slight gains of 0.08%.

This benchmark blue-chip index for US stock markets was driven higher by the AI-mania once more.

Tech names such as Nvidia, Intel, Oracle, and Broadcom were among the top-10 best-performing stocks on the S&P 500 on Wednesday (June 15^th).

For the US share market specifically on Wednesday, the AI-mania overpowered fears of a more-hawkish Fed.

 

Where to next for SPX500_m?

The frenzy surrounding AI-linked stocks should have more room to run, once this current pullback is over.

The ongoing declines at the time of writing may, in due time, help form a stronger base for the SPX500_m to launch another attempt at resurfacing back above the psychologically-important 4,400 level for the first time since April 2022.

In the meantime, stronger immediate-term support could arrive at the 4312.9 level, which marks the 61.8% Fibonacci level from the S&P 500’s peak-to-trough plummet in 2022.