S&P500 (SPX ) Price Analysis – May 22, 2023

Daily Price Outlook

The S&P 500 futures have struggled to recover and faced additional losses during the Asian trading session. This has led to cautious sentiment in the market as there is still no agreement between US President Joe Biden and House of Representatives Speaker Kevin McCarthy, putting President Biden in a challenging position.

Consequently, the S&P 500 Futures are showing slight losses, currently hovering around 4,200. This comes after a reversal from the highest levels seen since August 2022.

Additionally, the yields on US 10-year and two-year Treasury bonds have dropped to 3.65% and 4.23%, respectively. This indicates that investors are seeking the safety of Treasury bonds amid market uncertainty.

It's important to note that Wall Street closed with minor losses on Friday, reflecting mixed concerns surrounding the actions of the Federal Reserve and the ongoing drama surrounding the US debt ceiling.

Growing Optimism for US Debt Ceiling Deal Boosts Investor Confidence

On a positive note, there is growing optimism that a deal to raise the US debt ceiling may be reached this week. Kevin McCarthy, a prominent Republican in the US Congress, has announced that negotiations to increase the government's debt ceiling are progressing well. He expects a bill to be presented for consideration on the House floor in the coming week.

This development has helped alleviate concerns about a potential default by the world's largest economy and has instilled confidence among investors. As a result, overall market sentiment has been positive.

However, if an agreement is not reached, President Biden may have to utilize the authority granted to him by the 14th amendment to prevent the economy from defaulting. In simpler terms, the 14th amendment gives the President the power to protect the country's financial stability and avoid a situation where the government is unable to meet its financial obligations.

The potential default of the US government could have adverse effects on the economy, leading to a loss of investor and financial institution confidence, market instability, and hindered economic growth. Therefore, market participants are closely monitoring the negotiations between President Biden and Speaker McCarthy for clarity and stability in the market.

Federal Reserve's Inflation Concerns, Rate Hike Expectations, and Key Data Releases

Federal Reserve Chairman Jerome Powell expressed concerns about inflation on Friday and acknowledged that the recent banking crisis, which led to stricter credit standards, has reduced the need for interest rate hikes. This provided some relief to US Dollar bulls as it indicated a less aggressive stance by the Fed.

However, market expectations for a 0.25% rate hike in June have increased, while calls for a rate cut in 2023 have diminished. This shift in expectations is driven by positive economic data from the United States last week and hawkish comments from Fed officials. As a result, the market's previous optimism has waned, and investors are eagerly awaiting key economic data releases.

In the coming days, several important events are on the horizon, including the release of the Federal Open Market Committee (FOMC) meeting minutes, preliminary readings of the Purchasing Managers Indexes (PMIs) for May, and the US Core PCE Price Index, which is a key inflation gauge monitored by the Federal Reserve.

SPX S&P500 – Technical Outlook

The S&P 500 index is currently trading at the 4198 level, closely aligning with our previous forecast of 4190. On the four-hour timeframe, there has been a breakthrough of an ascending triangle pattern, indicating a strong resistance level around 4160.

This breach of the pattern suggests the potential continuation of the upward bullish trend in the S&P 500.

A bullish engulfing candle has formed on the four-hour chart, indicating a possible buying opportunity. The next significant resistance to monitor is at 4222, while support can be found around 4180. It is advisable to wait for a pullback to the 4182 level before considering additional positions on the S&P 500.

Both the RSI and MACD indicators are currently in neutral territory, and the 50-day exponential moving average is providing additional support.