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FX.co ★ US premarket on May 4: Fed decision may collapse US stocks. Lyft drops by 25%

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Forex Analysis:::2022-05-04T12:21:38

US premarket on May 4: Fed decision may collapse US stocks. Lyft drops by 25%

On Wednesday, US stock index futures are rising as investors braced for the Federal Reserve's important interest rate decision, where we are expected to see an immediate 0.5% hike. Dow Jones Industrial Average futures soared by 125 points or 0.4%. Futures on the S&P 500 jumped by 0.4% and futures on the Nasdaq 100 climbed by 0.3%.

US premarket on May 4: Fed decision may collapse US stocks. Lyft drops by 25%

There is no doubt that the Fed is going to make a hawkish decision. The central bank is expected to announce plans to reduce its $9 trillion balance sheet by about $95 billion a month starting this June. If Fed policy remains hawkish, the committee should announce another 50 basis point rate hike in June, and therefore the pressure on the stock market may return. Many economists expect the economy to go into recession at the end of a sharp rate hike cycle.

Prices are predicted to return to pre-pandemic levels only in the next 2-3 years, with little policy tightening by the Fed. Policymakers are arguing whether more policy tightening is needed to bring inflation to the target level or there is no need to rush into policy changes, as this would disrupt the smooth landing of the economy, even though it would take a little longer to reach the target level.

The Dow Jones gained 0.20% and the S&P 500 rose by 0.48% yesterday. The Nasdaq Composite technology index added 0.22%. The S&P 500 is currently trading within correction, having declined by about 12.4% since the beginning of 2022. Experts note that the current correction is consistent with the size and duration of previous post-World War II corrections.

US premarket on May 4: Fed decision may collapse US stocks. Lyft drops by 25%

Premarket

During the premarket, shares of Lyft, a competitor to Uber, fell by 26% after the company revealed weak forecasts for the current quarter on Tuesday night, as it looks to invest its funds to find new drivers.

Airbnb shares rose by 3.6% amid rising travel expectations.

Starbucks added 2.4% after a report showed an increase in revenue.

As for the technical picture of the S&P 500

Yesterday, bulls managed to fix the price above $4,162, which helped keep the demand for the trading instrument today. Now, they need to protect that level, which could be tested during the regular session after the Federal Reserve's interest rate decision is released. The index may test $4,162 and rise from this level. This would help reverse the bearish sentiment seen lately. However, it is too early to talk about a resumption of a bull market, which only recently managed to find a bottom near $4,050. If the price consolidates above $4,216, it may open a way to $4,265 and reach $4,319. In case of a return of pessimism to the market, the Central Bank chooses a more hawkish policy, and weak statistics on the US economy, bulls will have to defend $4,162. A decline in the trading instrument below this level would quickly push it to the lows of $4,113 and $4,085. If you have not opened long positions at this level, it is best to postpone opening longs until the trading instrument reaches a low of $4,057.

Analyst InstaForex
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