A soft landing is unlikely to materialize

The SPX has rallied approximately 3.5% since its lows on 19th April 2024 and well into the two-day FOMC meeting that kicks off today. In line with general market expectations, we do not anticipate any change to the central bank’s monetary policy, and just like on previous occasions, we expect Jerome Powell to reiterate the FED’s commitment to fighting inflation during his speech at the press conference tomorrow. The chairman is likely to praise the economy for its resilience and make remarks about the historically strong labor market in spite of financial tightening. In addition to that, Jerome Powell is probably going to outline challenges the FED faces, most notably accelerating inflation, which became a topic of discussion following the weakness in the stock market after the last print showed inflation rose for the second consecutive month. This fact could lead to his reluctance to discuss the central bank’s move toward easing, which in turn could lead to a resurgence in volatility and weakness in stocks. By keeping interest rates higher for longer, the FED risks constructing a recession on its own, which has been repeatedly a case in history. Therefore, we continue to hold the opinion that a soft landing will not materialize. Instead, signs of recession will become even more apparent. With that said, we believe there is a high chance for a major repricing event to take place in 2024.

Illustration 1.01

Illustration 1.01 displays the daily chart of the SPX and two simple moving averages. The yellow arrow indicates a bullish breakout above the 20-day SMA. Now, the 50-day SMA and the price's ability to break through it will be in focus. If the price fails, it will be worrisome.

Technical analysis gauge
Daily time frame = Bearish
Weekly time frame = Bearish
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.

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DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor or any other entity. Therefore, your own due diligence is highly advised before entering a trade.

Comment:

Illustration 1.02

A bullish breakout above the 20-day SMA was rejected.

Comment:

The FED leaves interest rates unchanged.