Markets await Fed release: Will stock prices break higher?
Stocks extended their consolidation yesterday, with the S&P 500 index closing 0.39% lower. The market continues to trade sideways ahead of today’s FOMC rate decision, scheduled for 2:00 p.m. This morning, the S&P 500 is expected to open 0.2% higher but will likely consolidate further ahead of the Fed announcement. Later in the day, volatility is likely. For now, it looks like a flat correction of the post-election rally.
Last Monday, I noted that “the S&P 500 index reached a new record high of 6,099.97 on Friday. The key question remains whether the uptrend will continue, despite signs of short-term overbought conditions.” Since then, the market has continued to fluctuate.
Investor sentiment has worsened last week. as shown by Wednesday’s AAII Investor Sentiment Survey, which reported that 43.3% of individual investors are bullish, while 31.7% of them are bearish - an increase from 30.7% last week.
The S&P 500 extends its consolidation, as we can see on the daily chart.
Nasdaq 100 Trades Near 22,000
The Nasdaq 100 index dipped by 0.43% yesterday, retracing part of Monday’s 1.5% rally after reaching a record high of 22,133.22 on Monday. Today, it is expected to open flat, and the session’s direction will depend on the Fed decision and Jerome Powell’s press conference.
There are no immediate negative signals, but short-term overbought conditions could lead to a correction.
VIX Moved Higher Again
The VIX index, a measure of market volatility, dropped to a new local low of 12.70 on the previous Friday, its lowest since early July. However, it rebounded, nearing the 16 level yesterday. This shows increasing market fear as sector rotation intensifies, with the technology sector rallying while other sectors lag.
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 Hover Near Record Levels
This morning, the S&P 500 March futures contract remains above the 6,100 level. Support for the March series is around 6,100 and resistance near 6,150. Significant volatility is expected later in the day.
Conclusion
Today’s trading session will likely see increased volatility following the Fed’s decision, though the S&P 500 is expected to open slightly higher and continue a consolidation in the morning.
A rotation within stocks continues, with some reaching record highs while recent leaders are lagging. Whether the market breaks higher after the Fed decision remains to be seen. Any breakout could lead to profit-taking, potentially extending a consolidation.
Last Monday, in my Stock Price Forecast for December 2024, I wrote “the stock market experienced a strong rally in November, driven by the presidential election outcome. While December is historically a bullish month, increased volatility and a short-term correction remain likely.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 awaits today’s Fed decision.
- The 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