On Tuesday, US stock index futures traded flat, returning to yesterday's closing levels as investors continue to consider the prospects of the Fed's aggressive actions to curb inflation. US bonds went down slightly. The S&P 500 and Nasdaq 100 futures held steady, while the 10-year Treasury yields hit a new three-year high.
The geopolitical complex situation and the Fed's aggressive policy will further limit the upward potential of the US stock market. Investors expect the Federal Reserve to raise interest rates by half a point next month. Moreover, St. Louis Fed President James Bullard stated recently that a 75 basis point increase was likely. Therefore, the situation in the stock market has deteriorated. The last similar increase occurred in 1994.
Besides, supply chain disruptions due to lockdown in China and commodity flow disruptions due to Russia's invasion of Ukraine affecting mainly the EU are other significant reasons for the rate hike. All these factors lead to increasing inflationary pressures having a profound impact on the world's central banks. Moreover, the World Bank downgraded its forecast for global growth for 2022 from 4.1% to 3.2%. The main reasons for it are the lowered forecast for Europe and Central Asia, including Russia and Ukraine. World Bank Vice President and Chief Economist Carmen Reinhart said in an interview that it was clear that the risks had increased significantly. She added that there were several reasons for negative economic estimates from China's COVID-19 lockdown, EU high inflation to Russia's invasion of Ukraine.
Bullard's recent statements indicate the current predicament of the world's central banks. Bullard has been known for his aggressive stance, highly appropriate at the moment. In case of raising interest rates, central banks will be at risk of recession. However, they aim to fight inflation.
As for the commodity market, oil rebounded slightly from its highs. WTI dropped from $110 to $107, while copper rose along with other base metals. Disruptions in Peruvian mines exacerbated fears of tight supplies.
Technical picture of S&P500
The bulls failed to break above the level of $4,433 yesterday. Therefore, they have to find ways to defend the new support around 4,376. The situation has deteriorated. However, positive reports will likely improve the market sentiment. If the trading instrument declines below $4,376, the buyers will have to defend the next support at $4,319. If the buyers fail to hold this range, the further growth is unlikely. In this case, it is advisable to postpone the purchases of the trading instrument to the lows of $4,265 and $4,216. If the price consolidates above $4,433, the buyers will regain control of the market. Moreover, in this case a reverse test of the level is necessary. This move will be significant to resume the upside potential and reach the resistance at $4,488 and $4,539. A breakout of these ranges will provide a chance to reach the highs of $4,589 and $4,637.
