U.S. Inflation Sets the Tone for The S&P500

The S&P500 futures (CME: ES) recently experienced severe downside momentum after realising a 4% plunge from last week’s highs on the back of the U.S. banking sector crisis. The second biggest bank failure since the 2008 financial crisis sent shockwaves through the markets as traders and investors feared contagion risks in the banking sector.  

With the dust from the banking sector seemingly settling, the U.S. CPI, which was in line with consensus Year-on-Year at 6%, could restore hopes of a minor 25 basis point or no rate hike. If the banking sector crisis cools off, the S&P500 futures will likely experience short-term upside price action. Disinflation could benefit the U.S. consumer and prompt a Fed pivot to cap borrowing costs.  


The S&P500 futures downtrend was fully established following a breakout below the ascending channel pattern and 100-day moving average. Support and resistance were established at the 3871.50 and 4018.00 levels, respectively.  

Bears likely failed to take the index lower following a sideway consolidation at support. A rectangle pattern was formed with support and resistance at the 3887.50 and 3934.25 levels, respectively. A breakout above the consolidation pattern’s resistance on high volumes could signal the end of consolidation and the beginning of a short-term uptrend. If the index is nudged higher, bullish traders will look to the 61.80% Fibonacci Retracement Golden Ratio at the 4001.75 level for take-profit levels.  

Alternatively, bears will look to either the consolidation pattern resistance or the 61.80% Fibonacci Retracement Golden Ratio at the 4001.75 for short opportunities if the index moves higher. Bearish traders will likely earmark the 3871.50 support level as a take-profit level if the index moves lower.  


Following the release of U.S. Inflation, which declined year-on-year, the S&P500 futures will likely find upside price action as traders rejoice in inflation’s lack of headway in February. Traders will now turn to The U.S. Retail sales and labour market reports ahead as they could provide short-term volatility. Despite both reports not carrying as much weight as the U.S. Inflation reports, traders will look for signs of strengthening inflation which could weigh down on company valuations and the S&P500.  

Sources: Reuters, TradingView