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June 23, 2022

More Downside On The SPX500 After This?

Frank Cabibi

When it comes to testimonies, it's all in how you say it. Jerome Powell has to be very particular in the way he makes his statements and answers the ensuing questions. Here is what might be in store for the market in the coming days and weeks, and whether or not there will be more downside or not.

"Unconditional Commitment To Fighting Inflation"

Powell's remarks regarding inflation are promising to the value of the dollar in the long run. However, what this means is that capping inflation comes before anything else. In 2020-21, the Fed focused so much of their energy on expanding job growth and the number of hires each month. Now, the Fed has another plan in mind, and that is to control the surging inflation by any means.

The Fed may not be concerning themselves with job growth at all until the inflation target is at or near 2% that they originally forecasted. So, if unemployment were to rise in the meantime, the Fed will continue to focus on hiking interest in order to reach that target.

Powell even goes on to say that it is even trickier to fight high CPI without bringing the labor market down as well.

Recession Is Possible But Not Inevitable

The Fed chairman continues to drive home his policy towards a 50 to 75 basis point hike for future meetings. This could put the financial market at risk for a recession, but it does not necessarily mean one will happen.

The 'soft landing' strategy they hoped for will probably not happen once things are said and done. So, the market may be rocky on the way to a recovering dollar, and the concern that a recession could happen is still present, but not definite, according to Powell.

SPX500 Setups

more downside

We are seeing some mild bullishness from the index after it touched down to the lows from several trading sessions ago. Price is now coming up to resistance on the 1D but could have enough momentum to break upward in the short term. The top of the falling channel could signify where price might turn back to the lows should it move that high. This area would be around the $4000 price level while the strongest support looks to be at the 2020 highs of $3390.

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