S&P 500; US Indexes Fundamental Daily Forecast – Stocks Clawing Back Losses after Early Session Weakness

If interest rates continue to rise then stocks are likely to remain under pressure. However, we could see an intraday short-covering rally due to short-term oversold conditions and bottom-picking by value-seeking investors.
James Hyerczyk
U.S. Stock Indexes

The major U.S. stock indexes plunged on Friday after a stronger-than-expected U.S. Non-Farm Payrolls report sent U.S. interest rates higher.

In the cash market, the benchmark S&P 500 Index settled at 2762.13, down 59.85 or -2.17%. The blue chip Dow Jones Industrial Average closed at 25520.96, down 665.75 or -2.61% and the tech-based NASDAQ Composite finished at 7240.97 or -144.89 or -2.00%.

Daily March E-mini S&P 500 Index

The Dow had its worst day since June 2016. The S&P 500 Index and NASDAQ Composite posted their biggest one-day fall since September 2016 and August 2017, respectively.

All 30 stocks in the Dow were down. The energy sector contributed the most to the loss in the S&P 500. Apple and Alphabet were the weakest stocks in the NASDAQ Composite Index, but this was offset by a strong gain in Amazon shares.

As of Friday’s close, the CBOE Volatility Index is at 17.31, having risen from 11.08 early in the week.

Daily March E-mini Dow Jones Industrial Average

Forecast

U.S. stock indexes traded sharply lower during the pre-market session early Monday, but the indexes have since clawed back to nearly unchanged.

At 1002 GMT, the March E-mini S&P 500 Index is trading 2753.25, down 3.50 or -0.13%. The March E-mini Dow Jones Industrial Average is trading 25362, down 65 or -0.26% and the March E-mini NASDAQ-100 Index is at 6757.25, up 1.75 or 0.03%.

The rise in the CBOE VIX indicates that investors should expect to see more volatility.

Daily March E-mini NASDAQ-100 Index

The direction of the indexes today will likely be controlled by interest rates. If interest rates continue to rise then stocks are likely to remain under pressure. However, we could see an intraday short-covering rally due to short-term oversold conditions and bottom-picking by value-seeking investors.

Traders are also expected to continue to respond to earnings reports. Nearly halfway through the earnings season, most companies have posted upside surprises. Of the S&P 500 companies that have reported as of Friday morning, 78 percent have beaten bottom-line expectations, while 80 percent have surpassed sales estimates, according to Thomson Reuters.

Markets in Asia fell across the board on Monday, following the U.S. markets lower. European markets were also trading significantly lower, continuing a global market sell-off. Both Asian and European traders were spooked by inflation which may be heating up.

Prices could come under pressure the rest of the week as Fed rate hike expectations are likely to continue to rise. Investors may continue to adjust to more Fed tightening than currently assumed. Talk on the street is that professionals may be pricing in as many as four or five rate hikes this year.

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