S&P 500 Technical Analysis – Inflation constraint weighs on the market

Fundamental Overview

The S&P 500 continues to remain under pressure with the market now down more than 9% from the all-time highs. The catalyst of the entire selloff was back on February 21^st when we got the weak US PMIs coupled with a new 30-year high in the long term inflation expectations in the University of Michigan Consumer Sentiment survey.

The market started to fear that in case we get a slowdown, the Fed might not be fast enough in cutting rates amid the inflation constraint and eventually worsen the economic pain. Moreover, the uncertainty around Trump’s tariffs add to those expectations of a slowdown in growth and potentially higher inflation in the short-term.

We can argue that Trump chose the worst time possible to start his trade war as the context is different from his first term when inflation wasn’t a problem. In fact, the market might have swallowed his trade war if it wasn’t for the inflation constraint that limits the Fed’s reaction.

As Dario Perkins from TS Lombard noted, when you want to do fiscal consolidation and avoid a recession, you need help from a dovish monetary policy. This help is constrained at the moment due to inflation being above the target and uncertainty about higher inflation expectations.

Tomorrow, we have the US CPI report and the market will need soft figures to trigger a relief rally, otherwise in case of hot data we could be up to much more pain ahead.

S&P 500 Technical Analysis – Daily Timeframe

On the daily chart, we can see that the S&P 500 broke below the key 5720 level and extended the drop into the 5560 level. From a risk management perspective, the sellers will have a better risk to reward setup around the 5720 level where they can step in with a defined risk above the level to position for a drop into the 5400 level next. The buyers, on the other hand, will want to see the price breaking above the 5720 level to regain some conviction and pile in for a rally back into the all-time highs.

S&P 500 Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that we have a downward trendline defining the bearish momentum. If we get a pullback into it, we can expect the sellers to lean on the trendline with a defined risk above it to position for further downside. The buyers, on the other hand, will look for a break higher to target the next trendline.

S&P 500 Technical Analysis – 1 hour Timeframe

On the 1 hour chart, there’s not much else we can add here as the sellers will look for a rejection around the trendline and the 5720 level, while the buyers will look for a break higher to target the next trendline around the 5840 level. The red lines define the average daily range for today.

Upcoming Catalysts

Today we get the US Job Openings data. Tomorrow, we have the US CPI report. On Thursday, we get the US PPI data and the US Jobless Claims figures. On Friday, we conclude the week with the University of Michigan Consumer Sentiment report.