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S&P 500; US Indexes Fundamental Weekly Forecast – Elevated Volatility is the Current Theme

By:
James Hyerczyk
Published: Mar 19, 2018, 06:34 UTC

Earlier in the year, speculation that the Fed may raise rates at least four times triggered a massive price slide. With the market struggling due to outside market influences, we could see a similar move if the Fed surprises with four rate hike projections.

U.S. Stock Indexes

The major U.S. stock indexes closed lower last week amid elevated volatility. Investors had to deal with concerns over the direction of interest rates as well as political turmoil and worries over a potential trade war.

In the cash market, the benchmark S&P 500 Index settled at 2752.01, down 1.2%. For the year, the index is up 2.9%. The blue chip Dow Jones Industrial Average closed at 24946.51, down 1.5%. In 2018, it’s up only 0.9%. The tech-driven NASDAQ Composite finished the week at 7489.42, down 1.0%. It has gained 8.4% this year.

E-mini S&P 500 Index
Weekly June E-mini S&P 500 Index

The theme this year seems to be volatility. According to U.S. financial advisers, Edward D. Jones, “stocks (as measured by the S&P 500) have advanced or declined more than 1% in nine of the 11 weeks logged in 2018, compared with 13 such weeks recorded in all of 2017.”

Last week, the Dow moved by more than 0.5% (more than 100 points) every session as investors were forced to react to a plethora of market moving events. This type of volatility is likely to continue to drive the price action moving forward, as the investment world continues to find ways to deal with new risks and new opportunities.

E-mini Dow Jones Industrial Average
Weekly June E-mini Dow Jones Industrial Average

In economic news, U.S. consumer inflation came in at 0.2%, meeting expectations but coming in well below the previous 0.5%. Core CPI also matched the 0.2% forecast, but came in below the previously reported 0.3%. The benign numbers probably mean the Fed will limit the number of rate hikes in 2018 to three.

Core Retail Sales disappointed investors with a 0.2% reading. The forecast called for an increase of 0.4%. The previous month was revised higher to 0.1%. Retail Sales were down 0.1%. Traders were looking for 0.3%. The previous month was revised higher to -0.1%.

Producer inflation rose 0.2%, exceeding expectations. Building permits were 1.30M versus a 1.32M forecast.

U.S. consumer sentiment rose more than forecast in the preliminary March reading, reaching a level not seen since 2004.

The University of Michigan’s mid-month report on consumer sentiment rose to 102 in March, its highest level since 2004. Traders were looking for a reading of 99.3, slightly below the previously reported 99.9.

The report suggests that consumers are focused on positive economic news rather than the recent stock market volatility and political uncertainty.  Optimistic mentions regarding recent tax reform legislation were weighed down, however, by negative views of steel and aluminum, the survey found.

E-mini NASDAQ-100 Index
Weekly June E-mini NASDAQ-100 Index

Forecast

The major event this week will be the U.S. Federal Reserve’s interest rate decision on March 21. Investors widely expect the Federal Open Market Committee to raise short-term rates 25 basis points. The Fed’s economic projections will be at the forefront because they may reveal whether the central bank believes the economy is heating up enough to warrant as many as four interest rates in 2018, or as little as two.

Earlier in the year, speculation that the Fed may raise rates at least four times triggered a massive price slide. With the market struggling due to outside market influences, we could see a similar move if the Fed surprises with four rate hike projections.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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