The US stock indices are hitting yearly lows and investors are seriously concerned about it. Recently, they have speculated about market bottoms and returning demand for risky assets.
US stock futures fell Monday morning, putting the S&P 500 back in bear market territory. Friday's inflation report is to blame, forcing the Federal Reserve to keep raising interest rates. S&P 500 futures declined by 2.4%. As of Friday's close, the index was 19% below its all-time high. After dropping by 20%, we can say that a bearish trend is beginning to form. Dow Jones Industrial Average futures plummeted by 600 points or 1.9%. Nasdaq 100 futures nosedived by 3%.
Notably, the yield on short-term 2-year Treasuries rose by 17 basis points to more than 3.22% on Monday, the highest level since 2007. This was because investors are expecting the Fed to act more aggressively to curb inflation. During the trading session, the two-year rate traded above its 10-year counterpart for the first time since April, a so-called yield curve inversion seen as an indicator of a recession in the economy.
The indices showed their biggest weekly decline since the end of January. The Dow and S&P 500 fell by 4.6% and 5.1% respectively, and the Nasdaq Composite lost 5.6%.
According to the US Labor Department report, the Consumer Price Index rose by 8.6% on a yearly basis, the fastest increase since December 1981. The increase exceeded economists' expectations. The so-called core consumer price index, which excludes food and energy prices, also came in above estimates at 6%.
The Fed is expected to announce at least a 0.5% rate hike on Wednesday. The regulator has already raised rates twice this year, including by 50 basis points in May. Some economists after Friday's Consumer Price Index report began saying the FOMC may raise rates by 0.75%.
Premarket:
The stock of Coinbase, a cryptocurrency exchange, fell by more than 14% amid a sharp collapse of Bitcoin and other cryptocurrency assets.
Amazon also plummeted in the premarket, as tech companies are the most susceptible to bearish sentiment during a period of high volatility.
Tesla also dropped by 4%.
The pharmaceutical sector showed more resilience. Pfizer declined by about 1%, holding up better than the market as a whole. The Food and Drug Administration published its briefing paper on the Pfizer Covid-19 vaccine for children. The agency said that the data from the clinical trial showed no new concerns about the safety of the vaccine.
Technical analysis of the S&P 500
Bulls are likely to make an attempt to close the gap formed during the premarket sell-off, but it is unlikely that the index will be able to recover more significantly in the near future. The target is located at the resistance of $3,826. However, the beginning of this week could make some changes. A breakthrough of $ 3,826 may push the trading instrument to the area of $ 3,866 where large sellers will come back to the market. At least, there will be those, who wish to lock in profits by closing their long positions. The next target is at the level of $ 3,900, but the asset is unlikely to reach it. In the case of the pessimism and another talk about the high inflation and the need to fight it against the background of the Federal Reserve representatives' statements about more aggressive steps, as well as the lack of activity from bulls at $ 3,770, we may see the next big sell-off near $ 3,755. A decline in the trading instrument below that level would quickly push it to new lows of $3,731 and $3,708.