The S&P 500 has opened lower by 1.16% after the Q2 2020 GDP numbers from the US revealed a record contraction of 32.9%. This contraction completely blew the previous figure of -5.0% out of the water, and also trumped the market expectation of a 34.5% contraction.
The worst decline in the GDP since the Great Depression is a reflection of just how much the coronavirus pandemic has battered the US economy, as business activity crumpled due to lockdowns set up to curb the epidemic.
A second wave of the pandemic forced reopened businesses in the retail space to be locked down once more, piling more pressure on the economy. A perceived lack of coordinated response by the US government in handling the pandemic has put US President Donald Trump’s re-election bid in the balance. This move comes even as the Democrats and Republicans squabble over the details of a renewed stimulus package that will resume the monthly payments to US citizens. The last payments deal expired last night.
The S&P 500 index currently trades at 3221.9.
Technical Outlook for S&P 500
Today’s dip, which has been initiated by a bearish gap on the daily chart, has violated both the rising wedge’s lower border and the 3228.4 support line. Confirmation of the breakdown of these areas still has to be sought by a time filter (double consecutive daily candle close below the 3228.4 support line). If the breakdown is confirmed, we could see a run towards 3137.0, with 3070.8 and 3028.3 continuing to remain relevant support targets in the near term. This move would constitute the measured move from the expected resolution of the rising wedge, which is for bearish price break below the wedge’s lower border.
On the flip side, failure to confirm the breakdown may allow the S&P 500 a reprieve, which will rely on a bounce from the 3228.4 support to dash 3335.5. A pitstop exists at 3256.1 and this needs to be overcome, along with the wedge’s upper border for the move to 3335.5 to be actualized. Such a move would then invalidate the wedge.