Will The S&P 500 Crash This Week?

S&P 500 Digests Fed Signal 

The S&P 500 sank on Friday, tracking steep weekly losses, as investors absorbed Federal Reserve Chair Jerome Powell’s signal that the Fed isn’t in a hurry to make interest rate cuts.

The market is now pricing in a 62% probability that the Fed will cut interest rates in December. At the beginning of the week, the likelihood of a rate cut in December was 81%.

At the start of last week, 66% of stocks in the S&P 500 traded above their 20-day Moving Average. That has now fallen to 50% and will likely fall further this week.

On balance, if the Fed reduces the trajectory of interest rate cuts and the economy remains strong, that should be good for equities in the longer term.

Bond yields advanced last week, and the U.S. dollar remains strong. The dollar broke through our predicted level of 106 before rejecting 107.

If yields continue to move higher due to economic expansion or inflation, that could signal concern about the economy and caution about equities.

USD/JPY

Pay attention to USD/JPY. The 10-year yield and USD/JPY chart are correlated.

The USD/JPY has topped, and it won’t see 162 again soon. When the USD/JPY starts pulling back, the yields will start pulling back. If the USD/JPY breaks down under 151, then that would signal that the U.S. dollar is ready to pull back hard.

If you get the U.S. dollar right, then you get the market right. Should the U.S. dollar pull back to 102, all assets will have a chance to rally.

S&P 500 Key Levels

As predicted last week, the S&P 500 call resistance failed to move upward, and the S&P 500 made an asymmetrical move down to the gamma flip zone. However, the S&P 500 remains in positive gamma.

The call resistance level remains at 6000, and the gamma flip zone and put support levels did not change.

If the S&P 500 moves lower today and into negative gamma, then the put support level at 5785 comes into play as the next support level.

S&P 500 Post Election

Stocks tend to rally after the election, although it’s not linear. There is normally a period of sideways movement in the first 15 to 20 days post-election week and then a rally into the end of the year. The rally can be linked, in part, to the central bank debt re-financing cycle and the liquidity injection they facilitate.

That rally fades after the inauguration, with downward price momentum in the following 90 days of the new presidency before upward momentum resumes at year’s end. The downward price momentum is a seasonal event linked to the March to April tax season.

If global liquidity remains strong at that point, then the S&P 500 should rally strongly into the end of 2025.

Trump Policies

It’s crucial to keep a close eye on the market’s response to the second Trump administration, as it will undoubtedly be a significant factor in shaping the market’s trajectory.

While tax cuts, lower immigration, and regulatory easing could lead to the U.S. economy outperforming consensus expectations and other developed economies, it’s crucial to be mindful of the potential risks. Large across-the-board tariffs, in particular, could pose a significant threat to growth.

Click on the Journal link below to read more about the factors currently driving the economy, the stock market and Bitcoin.

Link: JOURNAL