The S&P 500 broad market index has been losing 2.5% this week after Federal Reserve (Fed) officials failed to provide any support to the stock market this week amid a stalling economy. Investors were hoping the Fed would ease its monetary stance after quite disappointing macroeconomic data for the U.S. economy was released this week.
Retail sales in the United States in December 2022 contracted by 1.1% month-on-month vs the expectation of a 0.8% rise. Industrial production dropped by 0.7% month-on-month against the expected 0.1% decline. Together with slowing down inflation of 6.5% year-on-year, investors were looking forward to the Fed adding some positive tunes to support the market. But the Fed kept its resilient stance in place as Cleveland Fed President Loretta Mester, St. Louis Fed President James Bullard, and Fed Board member Christopher Waller, continued with their hawkish rhetoric this week. When the hawkish chorus was joined by Fed Governor Lael Brainard, investors understood they had underestimated the Fed’s determination to continue with its battle with high inflation at any cost.
This is particularly bad news for risky assets, and this may lead to a turmoil in the stock market this February-March. Technically, the S&P 500 index is within the upside formation with the primary target at 4100-4200 points. The index is now close to the support zone at 3900-3920 points, and may recover to 3980-4000 points. However, if the support is broken, the index may tumble to 3820-3840, and reach even further down with a possible change of the formation to the downside.
Brent crude prices are going up in the effort to break through the resistance at $87-89 per barrel. The weakening U.S. Economy and the Lunar New Year in China may crush these efforts as prices may roll back to the support level at $77-79 per barrel. If this base scenario plays out, prices may continue down to $68-70 per barrel.
Gold prices are moving inside the mid-term and are thought to move within the upside formation with targets at $2000-2100 per troy ounce by the middle of 2023. Prices have largely exceeded the upper margin of $1880-1900 per ounce, hovering around $1930 per ounce and are thought to go through more geopolitical tensions, making the outlook for future price movements quite uncertain. Odd price growth over the last week may suggest a further price rally without any stopovers, but also signal a possible swift change of a trend to the downside during elevated volatility to rewrite last year’s lows.
The money market is ready for the strengthening of the U.S. Dollar. Considering high volatility in the market, potential strengthening of the Greenback may be very strong, especially if it will be accompanied by the tumbling stock market. It is better to place orders that are attached to longer perspectives. Short trades for EURUSD opened at 1.06700-1.07200 with a downside target at 5000 points below the opening level and the same 5000 points for a stop-loss order should be considered very attractive this January.