Will FOMC Spark A Massive Stock Market Correction?

 | May 03, 2022 12:51PM ET

Stock market action on Friday, April 29th, was very bearish for the major indices, including the S&P 500. The index moved steadily lower throughout the day as investors, traders, and speculators bet on what was to come this week. What comes this week is the FOMC meeting, and it is one the market should fear. As much prep as the FOMC has done, we don’t think the market is really pricing in what the Fed is about to do. At least, not the average investor because price action has been looking .

S&P 500 Daily Chart

In that scenario, we would expect to see the market react fairly quickly and lead to a retest of 4,100 for resistance. If that level can’t be regained quickly the odds of a pullback to a deeper support level rise. In that scenario, price action in the S&P 500 could pull all the way back to 3,700, 3,200, or even 2,800 depending on how bad the recession is. As for recession, GDP has already contracted for one quarter, all it takes is one more for that to be a reality. If the FOMC is overly aggressive, as in more aggressive than what is currently priced into the market, we favor the hard-landing scenario.

The Outlook For S&P 500 Earnings Isn’t As Good As It Looks

The S&P 500 is still producing results of the Energy sector . The Energy sector is outperforming its very high 245% earnings growth consensus by double digits and the forward estimates are up strongly as well. The takeaway is that “S&P 500” earnings growth is present but mostly in the Energy sector. If the economy takes a hit from the FOMC the average S&P 500 company could easily fall into an earnings recession.

The Technical Outlook: The S&P 500 Is Testing Support

The S&P 500 is testing support at 4,100 and might break through. If that happens after the FOMC announcement and the market doesn’t bounce back quickly we think the market is in for a deep, deep correction. The risk is in the FOMC however, and how the market takes the news, so we aren’t making any big trades before then.

ES Futures Daily Chart
Get The News You Want
Read market moving news with a personalized feed of stocks you care about.
Get The App

Original Post

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

Sign out
Are you sure you want to sign out?
NoYes
CancelYes
Saving Changes