The stock market is under pressure again. It is now more likely that he will revisit his recent bottom.
suffering the fourth consecutive day of decline on Friday. It is now down about 13% from its mid-August summer rally peak. One big driver: Very high inflation is pushing the Federal Reserve to raise the federal funds rate quickly. This week, the Fed indicated that it sees the “peak funds” rate going above 4.5%, slightly higher than previously thought. The Fed is trying to lower the inflation rate by reducing economic demand, so the problem for the stock market is that the economy could affect corporate earnings.
All this has landed the market at a dangerously low level. The S&P 500 fell this week below a level just above 3800—it’s now ticking below 3700. That’s key; at just over 3800, buyers had entered several times recently to support the index. Those buyers are gone because confidence in the market outlook has disappeared. With the index now going down, “the retention failure  It is a major character change for the market, increasing the chances of a quick fall to the June lows,” John Kolovos, chief technical strategist at Macro Risk Advisors, wrote in a research report.
Speaking of that low in June, the market is definitely flirting with revisiting it. The daily rate for the year is 3636, hit in mid-June. The possibility of the S&P 500 going back to that level is scary, not only because it is a small loss from here, but also because at that point traders would have to hope that they can buy “support”. then. If the index falls below that support level, the next support level is roughly just below 3500. That’s a 5% loss from here.
That’s the bad news, but don’t give up hope just yet. There is still an upside story. If the index can find support near the low, it could have an “impulsive rally” above the 4100 area, Kolovos wrote. That’s where a brief early September rally ended – and the sellers came in. Buyers at that level would give a growing market more confidence.
In fact, there could be some positive developments to bring the market back up. The main development is that the Fed does not raise the fed funds rate to above 4.5%. Historically, the Fed often does not raise rates all the way up to its projection, Sevens Report Research noted. In 2015, the Fed projected the fed funds rate to rise to just over 3% from a few years ago. By 2019, it peaked at around 2%. That’s because interest rates move higher as the Fed’s rate hiking campaign begins, reducing borrowing and spending. Then, economic growth declines and the Fed pauses on rate hikes.
“If the economy begins to slow meaningfully in the coming months, history suggests that the Fed will need to lower its outlook for terminal-fed funds,” wrote Tom Essaye of the Sevens Report.
That would likely put a bottom line on economic growth forecasts. Earnings may not tank to catastrophic levels, although he will succeed. The market can look to better days then, when economic growth and profit can be reliable.
The point is that the market is at a crossroads and the next few trading days will be crucial.
Write to Jacob Sonenshine at firstname.lastname@example.org