S&P 500: while maintaining upward dynamics

 
 
 
 
 
 
 

The dollar continues to strengthen, receiving support from the growing yields on US government bonds. As of this writing, the yield on US 10-year bonds stood at 1.452% versus multi-year lows reached near 0.500% in August last year.

At the same time, futures on the DXY dollar index are traded near the 91.15 mark, about 200 points above the local multi-month low of 89.20, reached in early 2021.

The strengthening of the dollar and the growing yield on government bonds cannot but attract attention from investors and buyers on the American stock market.

Despite the upward correction that emerged after the 2-day speech of the head of the Fed, Jerome Powell, in the US Congress last week, today the American stock indexes are down again, and for the third day in a row.

Thus, S&P 500 futures are testing the important support level 3815.0 again today, maintaining the tendency to decline on short-term time frames.

A breakout of this support level will open the way for a deeper decline in the S&P 500. In this regard, today investors will monitor Powell's speech, which is scheduled to start at 17:05 (GMT), in order to receive renewed assurances from him regarding the maximum support for the American economy from the Fed.

Fed spokeswoman Lael Brainard said Tuesday that the dynamics of the bond market last week "got attention". If Powell today also draws attention to the growing yields on government bonds, then this may negatively affect the dollar quotes and support stock indices.

One of the tools to restrain the growth of bond yields is an increase in the volume of their purchases by the Fed, i.e. expansion of the quantitative easing program. Huge multi-billion dollar infusions of cheap liquidity into the financial system are largely absorbed by the stock market. It seems that the American, and indeed the world, stock market again needs support from the Fed. At first, of course, a powerful verbal intervention by the FRS leadership will suffice.

In general, there is still long-term positive dynamics of the American stock market and the S&P 500 index, in particular. However, in order to fully restore its positive dynamics after the observed corrective decline, the S&P 500 index needs to return into the zone above the resistance levels 3852.0, 3871.0 (see "Technical analysis and trading recommendations").

If Powell does not add anything new to his statements made last week, then the corrective decline in stock indices and the strengthening of the dollar may gain momentum.

From the news for today, which may increase volatility in the financial markets, we are waiting for the publication at 13:30 (GMT) of the weekly data from the US labor market. A slight deterioration in indicators is expected (an increase in the number of initial applications for unemployment benefits in the week of February 21-26 to 750,000 against 730,000 in the previous reporting period).

In theory, this should negatively affect the quotes of the American stock indices and the dollar. However, the market reaction to such statistical information in the current conditions is becoming more difficult to predict. Powell's verbal intervention can have a greater impact on the markets.