Relevance up to 12:00 2022-01-28 UTC+00
US stock index futures declined in early trading on Thursday, but then returned to the upside gradually recovering from yesterday’s sell-off. While the Federal Reserve’s updates did not come as a surprise to investors, it was not very positive and after Jerome Powell’s speech, they decided to go back to January 24 low again. However, their strength was not enough to do so. The Dow Jones futures were down by 61 points in highly volatile trading, recovering from a drop of nearly 500 points. S&P 500 and Nasdaq 100 futures were down by 0.1%.
As for the results of yesterday’s vote itself, it was unanimous. Philadelphia Fed President Patrick Harker was voted in as deputy to the Boston Fed, which currently has no president, and the three vacancies on the Board of Governors reduced the number of voters at this meeting to nine. The officials kept the key interest rate target unchanged at 0.00%-0.25%, as expected.
Chairman Jerome Powell stunned the markets with comments that the Fed has “quite a bit of room to raise interest rates” before it negatively affects the employment market. Against this backdrop, given that many investors fear just such a scenario, stocks fell sharply. The 10-year Treasury bond yield rose above 1.8% after the statements. Powell also did not rule out taking similar steps at each subsequent meeting to combat the all-time highest inflation.”The committee is of a mind to raise the federal funds rate at the March meeting assuming that the conditions are appropriate for doing so,” Powell said in a news conference.
Experts note that despite some clarity on how the Fed will begin the process of tightening monetary policy, the outcome of the meeting did not provide the necessary clarification on the timing and extent of policy changes. In a separate statement, the Fed said that the balance sheet reduction process would begin after rates are raised to the necessary level. Powell said nothing about the specific timing of the start of the balance sheet reduction, only adding that the meeting did not decide when these actions should be taken.
Notably, such high volatility plays on investors’ side, as they get a chance to buy a lot of stocks at good prices. Since the end of last year, the market has been showing the most aggressive sentiment, hitting the companies that react very sharply to any change in the cost of borrowing, which are all the technology companies in the NASDAQ index. Such high volatility is unlikely to last for a long time, and given that the US economy and labor market are showing good performance, you can count on a quick market recovery before another turbulence in spring.
At the premarket, shares of some tech companies were able to strengthen. For example, Netflix jumped by more than 4% after Bill Eckman of Pershing bought 3.1 million shares. Tesla was down by 1.5%, offsetting yesterday’s 2% gain after a strong earnings report. Intel, meanwhile, lost 2% amid the company’s fairly strong revenues.
There are also a large number of reports scheduled for today. Mastercard, Blackstone, Southwest Air, and JetBlue are the ones to monitor. The Q4 numbers will be released before the start of the trading day.
The Q4 GDP report will also be important, as well as durable goods orders and jobless claims. Economists expect the economy to grow at an annualized rate of 5.5% in the last three months of 2021.
As for the technical picture of the S&P500 index
The market has performed a strong correction. The growth and volatility are expected to remain quite high. Most likely, we may see another slide down below $4,312, which is likely to lead to a decline to the area of $4,265 and even touch $4,212, where I recommend making purchases. In case of growth above $4,378, we may expect a jump of the index to $4,449, where it is better to take profit, as the trading instrument is likely to trade sideways within the channel of $4,223 – $4,449 for a long time.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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