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S&P Back at Highs

Following a roughly 6% correction lower in April, the S&P has managed to claw its way back into bullish territory with the index now back up just below all-time highs. Bullish Q1 corporate earnings have been a big boost for the index with S&P companies on track to record their best quarterly earnings vs expectations in over two years. Alongside this, the recent shift in traders’ expectations with regard to the Fed is also helping drive the index higher. On the back of recent data weakness (GDP, labor market readings), traders are now rebuilding near-term Fed easing expectations with September once again the target month. Easing forecasts had previously been pushed out as far as November from their start point of June earlier in the year.
 

US Data in Focus

Looking ahead this week, traders will be focusing on Wednesday’s US data with both April CPI and retail sales due. Given the recent weakness we’ve seen in key readings and the dovish shift we’ve seen in traders’ Fed expectations, the index has a good chance of breaking out to fresh highs if we see further data weakness on Wednesday. In particular, a drop in inflation will be seen as cementing near-term Fed easing expectations.
 

Fed Easing Expectations

At the last FOMC, the Fed made it very clear that it wants to push ahead with easing but is being restricted by sticky inflation at elevated levels. Therefore, a resumption of the fall in CPI which we saw over H2 2023 will be cheered by the Fed and welcomed by stock traders. However, any unexpected upside in CPI this week will muddy the waters once again and likely see fresh USD buying near-term, weighing on the S&P.
 

Technical Views

S&P 500

The correction lower found support into the 4932.83 area with price now back up retesting the underside of the broken bull trend line. All time highs sit just above at 5268.67, creating an important resistance area of the index. A break higher here opens the way for further record gains. However, should we fail here, a fresh test of 5045.85 and 4932.83 looks likely.   

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