Should You Invest in S&P 500 Following Largest 1-day Dip in 2 Years?September 15, 2022
- US stocks endured declined following Tuesday’s hot CPI release.
- The Fed will keep hiking until the fund rate surpasses the inflation rate.
- S&P 500 presented a bullish reversal setup on the daily chart.
The United States inflation data published two days ago catalyzed a swift downward move within the United States equity markets. Moreover, the US dollar resumed its bullish trend.
Meanwhile, the aggressive sell-off had S&P 500 index recording its highest single-day slump in two years. The stock closed at lows and could not bounce the next day.
Indeed, market players had to sell stocks. Though the inflation data showed a peak could be underway, inflation stays stubbornly high. That can worry stock market players due to the massive gap in year-on-year inflation – currently at 8.3% while the Federal funds rate stands at 2.5%.
Remember, the previous eight cycles witnessed the Federal Reserve hiking to a point where the funds rate surpasses inflation. Thus, stocks tanked, and more hikes remain pending. However, investors should remember the stock market’s forward-looking culture.
Stock Mostly Bottom Earlier in Business Cycle
Bust and boom periods make a business cycle. Stocks serve as dominant indicators amidst recession since they tend to bottom earlier, some six months before the decisive turning point for the economy. However, the truth remains that the United States isn’t in a recession.
Nevertheless, most of 2022’s plunge within the equity markets emerged from fears of an imminent recession. Could the stocks have bottomed and are ready to soar with the current United States economy strength? Higher interest rates aren’t necessarily hazardous to stock markets if that’s the narrative.
Inversed Head & Shoulders Setup Paints Bullish Picture
The technical outlook shows an inverse head & shoulders setup on the 24-hour chart. The index responded near the neckline and swayed at a vital level during this writing.
Precisely, stocks paint a bullish picture from a contrarian standpoint, provided they steady beyond 3,600. The neckline at 4,200 pts should serve as a pivot zone. Any move beyond this mark would possibly catalyze renewed momentum.
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