S&P 500 Drops 1.7% As Weak PMI Data Triggers Sell-Off

Key Insights

• Weak PMI reports put significant pressure on stocks. 
• Bulls were not prepared for the hawkish Fed and the disappointing economic data. 
• A successful test of the support at 3840 will push S&P 500 towards the next support level at 3815.

S&P 500 Tests Multi-Week Lows As Sell-Off Continues

S&P 500 remains under strong pressure ahead of the weekend as traders react to the disappointing PMI data. NASDAQ Composite is down by 1.5% in today’s trading session.

Manufacturing PMI declined from 47.7 in November to 46.2 in December, while Services PMI decreased from 46.2 to 44.4. Numbers below 50 show contraction. Both reports missed analyst estimates.

Yesterday, U.S. reported that Retail Sales declined by 0.6% month-over-month in November, while Manufacturing Production decreased by 0.6%.

All recent economic reports highlighted the negative impact of higher interest rates. Meanwhile, the Fed remains hawkish as it fears that inflation may become entrenched.

As a result, the Fed will continue to raise rates at a time when the economy is slipping into recession. At this point, traders do not believe that the Fed will change its mind because of the latest economic data.

Today’s pullback is led by REITs, which have found themselves under strong pressure amid worries about aggressive Fed policy. Energy stocks are also moving lower as oil markets retreat on recession risks.

From a big picture point of view, bulls were not prepared for the hawkish Fed and the disappointing economic data. They were caught off guard, and S&P 500 gained strong downside momentum.

S&P 500 Tests Support At 3840

Currently, S&P 500 is trying to settle below the support at 3840. If this attempt is successful, it will move towards the next support level at 3815. A move below 3815 will push S&P 500 towards the support at 3800. In case S&P 500 declines below the support at 3800, it will head towards the 3775 level.

On the upside, S&P 500 needs to settle back above 3840 to have a chance to gain upside momentum in the near term. The next resistance level for S&P 500 is located at 3860. If S&P 500 settles back above this level, it will head towards the resistance at 3900.

For a look at all of today’s economic events, check out our economic calendar.