Where will stock prices move amid mixed economic and geopolitical signals?
Wednesday’s trading session started on a negative note following higher-than-expected consumer inflation data. However, stocks managed to retrace most of their initial losses, and the S&P 500 index closed just 0.27% lower, extending its consolidation. Today, the index is set to open 0.2% higher after the Producer Price Index (PPI) came in at +0.4% month-over-month, slightly above expectations.
Investor sentiment worsened again, as shown by yesterday’s AAII Investor Sentiment Survey, which reported that 28.4% of individual investors are bullish, while 47.3% of them are bearish.
The S&P 500 index continues to trade below the 6,100 level, as we can see on the daily chart.
Nasdaq 100 Also Rebounded
The Nasdaq 100 closed 0.12% higher on Wednesday, rebounding after opening lower. Resistance remains at 21,800–22,000, while support is around 21,500, marked by last Friday’s low.
Today, the Nasdaq 100 is expected to open 0.3% higher.
VIX Continues Its Consolidation
The VIX index, a measure of market volatility, rebounded from 15 last Friday, reaching 16.66. It continues to fluctuate with local highs above 20 on January 27 and February 3, still indicating a lack of fear in the market.
Historically, a dropping VIX indicates less fear in the market, and rising VIX accompanies stock market downturns. However, the lower the VIX, the higher the probability of the market’s downward reversal. Conversely, the higher the VIX, the higher the probability of the market’s upward reversal.
S&P 500 Futures Contract: Extending Fluctuations
This morning, the S&P 500 futures contract is trading below the 6,100 level. It initially declined after the PPI release but has since rebounded.
Resistance remains around 6,100-6,120, while support is around 6,000-6,020.
Conclusion
Today, the stock market is expected to open slightly higher following the producer inflation data. Overall, stock prices continue to move sideways despite positive geopolitical news regarding a potential end to the Russia-Ukraine conflict.
Economic data suggests that interest rate cuts may be further delayed, and earnings reports have not triggered rallies in big tech stocks. Hence, consolidation is likely to continue.
On Monday, in my Stock Price Forecast for January 2025, I noted “...recent rallies have provided selling opportunities. What will February bring? The earnings season is in full swing, likely adding to volatility. Political developments are increasing uncertainty. The market's ongoing consolidation since November may be forming a medium-term topping pattern ahead of some more meaningful downward correction. However, no confirmed bearish signals have appeared yet.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 is likely to continue moving sideways.
- The stock market is still seeing increased volatility following the post-election rally.
- In my opinion, the short-term outlook is neutral.
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Paul Rejczak,
Stock Trading Strategist