Will FOMC Spark A Massive Stock Market Correction?
MarketBeat.com | 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 .
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.
h2 The Outlook For S&P 500 Earnings Isn’t As Good As It Looks /h2The 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.
h2 The Technical Outlook: The S&P 500 Is Testing Support /h2The 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.
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