Piece written by Alexa Smith, Trive Financial Market Analyst 

On Wednesday, the SPDR S&P 500 ETF (NYSE Arca: SPY) experienced a downturn following the decision by the US Federal Reserve to maintain interest rates at 5.5% while adopting a more assertive monetary policy stance on the prospect of further rate hikes. This approach, increasingly endorsed by officials, is believed to have the potential to curb inflation without causing economic turmoil or substantial job losses. 

Updated quarterly projections showcased the likelihood of the Fed’s benchmark overnight interest rate reaching a range of 5.50% to 5.75% before the end of this year, with rate cuts not expected until June 2024, later than previously communicated. Federal Reserve Chair Jerome Powell highlighted the current state of the US economy as “solid,” with continued “strong” job growth, which will likely enable the central bank to keep the pressure on financial conditions through 2025 with minimal adverse effects on the economy and labour market. 

However, Powell indicated that the Fed would proceed with caution in future policy moves, underscoring that the central bank had not yet determined the appropriate level of interest rates required to bring inflation back to its 2% target. Although certain measures still depict inflation as more than double the Fed’s desired level, Powell noted a declining pace in key sectors of the economy. 

Concerns in the economy were reflected in the notable surge in yields on the US 2-year Treasury, reaching levels not seen since 2006, as apprehensions grew regarding the implications of higher interest rates. Furthermore, the technology sector denoted in the graph above experienced significant losses, driven by fears that continued rate hikes could hinder the growth of tech stocks. 

Technische Analyse 

An ascending channel pattern is evident on the 1D Chart, with the $348.89 support bolstering the SPDR S&P 500 ETF into a firm uptrend. The price action established resistance at $459.21, the channel’s upper boundary, which could mark a point of interest if a reversal occurs. However, the ETF could fall short due to demand constraints.  

Since the ETF ticked lower following the Fed’s hawkish pause, a move below the $436.48 support at the 100-day moving average line could take the price action towards the $433.18 support at the 23.60% Fibonacci Retracement. If broken down, the $433.18 support could mark a pivot point for a downtrend, marking the lowest level in more than two months. However, a breakdown of the $433.18 support could edge the price action towards the channel’s lower boundary and see a broader uptrend play out.  

Zusammenfassung 

The SPDR S&P 500 ETF tumbled due to a hawkish pause from the Fed, elevating concerns about the impact of raised interest rates on demand. The ETF is trading within reach of the 100-day moving average, which could pose a barrier towards the $433.18 support if the downside momentum continues. However, a robust US economy could again see the $433.18 support hold and bolster the ETF towards the channel’s upper boundary.  

Sources: TradingView, CNN, Reuters, Koyfin