The speech by Fed Chair Jerome Powell is not delivering anything that investors have not heard before, which is why those on the S&P 500 are not responding positively to his words. Instead, all attention seems to have shifted to President Donald Trump’s news conference, which is expected to drill down hard on China after Beijing’s passage of the controversial National Security Law on Hong Kong.
Speaking at a live event sponsored by Princeton, Powell reiterated that the focus of the Fed is more on lending to businesses and not on spending. He also hammered the use of negative rates, saying they would erode bank margins and make them lend less, thus defeating the purpose of the Fed’s stimulus program. These comments are rhetoric from previous statements and have not elicited a positive response on the S&P 500 and other US markets. Besides, the record slump in consumer spending by 13.6% in April is also weighing on market sentiment.
Investors are instead waiting with bated breath, the outcome of President Trump’s press conference, slated for later today even though the time has not been stated.
A bullish gap took the price action of the S&P 500 past the resistance wall yesterday, but this move lacks momentum and built into today’s selloff. A further advance in the S&P 500 will depend on a clear breakout of price above the 3028.3 price mark that caps this zone. This break would also take the price above the 200-day SMA, which is embedded in the price resistance wall. A breakout targets 3137.0, with the 88.6% retracement from the 19 February 2020 high to the 18 March 2020 low at 3257.8 constituting another target to the upside if price advance continues.
On the flip side, the S&P 500 could be sold off if the US President’s press conference contains wording that would spook the markets further. Additionally, any Chinese response over the weekend to punitive measures announced in today’s press conference could setup a risk-off situation, which could lead to a decline to 2844.3, and possibly 2707.7. with 2798.3 (50% retracement) intervening between both potential support targets.