Overall, the data still suggests more downside pressure this week.
Futures show a slight upside bias to the morning. However, the VIX remains stubbornly low, and the ‘big’ hedge that JPMorgan placed on the S&P 500 for the quarter is below current values. Pair this with the upcoming expected rate hike this Wednesday and there is still pressure to bring this market down further.
The narrative has been pretty disjointed. For a little bit, there was a relief-ish rally based on optimism the Fed may be near the end of its tightening (aka interest hike) cycle. But the economic data continues to suggest inflation is high. So this theory has been a bit shaky.
The data point that seems to stay under everyone’s breath is unemployment. It’s not a guarantee that’s the critical line in the sand, but it’s a good bet. Until we see job losses start to pile up, there’s little to reduce pressure on wage inflation. And wage inflation is probably the biggest overall factor to consider for future inflation.
This puts the Fed in a tough spot. They’d like to ‘talk’ this economy into line without having to push policy measures too hard. So certainly verbal guidance is part of the game. But the reality is, this data has at times moved a lot faster than they expected. And in other cases, it’s been a lot more stubborn than planned.
Examples include the stubborn inflation figures and mortgage rates. One won’t drop while the other keeps climbing. The growing gap only creates more strain on the economy.
Certainly something will give. The question is, what? Many are hoping it is the Fed’s rate-tightening cycle. But the stubbornness of the labor market suggests this may take a while longer.
All this is to suggest the overall economic health of the country — and for that matter, the globe — is in question. When taking into account the macro picture, along with the technical indicators of the market that suggest there is still short-term downside risks out there, it’s tough to get too optimistic right now. It looks like downside pressure with support about at about 3840 for the SPX this week.
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