US stock index futures traded in the red on Thursday, and the benchmark S&P 500 is preparing to end its worst first half of the year in decades. Dow Jones Industrial Average futures lost 363 points or 1.2%. S&P 500 futures fell 1.5% and Nasdaq 100 futures fell 1.9%.
The market is falling against the background of expectations of further super-aggressive monetary policy on the part of the Federal Reserve System. This week, representatives of the US Central Bank made comments, and none of them even hinted at a pause in the rate hike cycle, which was so actively discussed in the market a month ago.
The president of the Federal Reserve System of New York, John Williams, recently said that although he expects the US economy to avoid recession, he still sees the need for higher interest rates before the end of the year. This is necessary for full control over inflation. "Right now, the recession is not my basic option. I think the economy is strong enough and will be able to cope with the current problems. However, it is now more obvious than ever that financial conditions need to be tightened further, even if GDP growth slows down slightly this year compared to what we have seen in the past," Williams said in an interview.
By the way, yesterday the Central Bank of Sweden became the last one to raise interest rates from among the countries with developed economies. The combination of slowing economic growth, fading profit prospects for American companies, and the ongoing tightening of monetary policy continue to affect investor sentiment, which is ready to sell stocks again, preparing for the worst.
Inflation data is expected today, while the main index of personal consumption expenditures should outline the situation in more detail. This is the preferred indicator of the Federal Reserve System, and it is expected to show growth of 4.8% year-on-year in May. The focus today will also be on weekly applications for unemployment benefits. Economists expect an increase of 230,000.
As noted above, the Dow and S&P 500 are on track for their worst three-month period since the first quarter of 2020. The Nasdaq Composite technology index has fallen more than 20% in the last three months, which was the worst performance since 2008.
As for other speeches by Fed representatives, yesterday the president of the Federal Reserve Bank of Cleveland, Loretta Mester, announced that she supports a 75 basis point increase at the upcoming July meeting of the Central Bank. Earlier in June, the Fed raised its benchmark interest rate by three-quarters of a percentage point, the biggest increase since 1994.
At the end of the half-year, some of the largest technology companies recorded a significant decline: Netflix fell by 70%. Apple and Alphabet each lost about 22%, while Meta, Facebook's parent company, lost 51%.
As for the technical picture of the S&P 500
Yesterday, the bears kind of took a break, but the lack of buying interest led to the continuation of the downward peak today. Right now, buyers need to take control of the $ 3,788 resistance, if they are hoping for anything at all this week. A break in this range will push the trading instrument to a new active upward movement, to the areas of $ 3,826 and $ 3,867, where large sellers will return to the market again. At least there will be those who want to fix profits on long positions. A more distant target will be the $ 3,905 level. In case of pessimism and another talk about high inflation and the need to fight it, the trading instrument will easily update the nearest support of $ 3,757. If the bulls are not active there, a breakdown of this range will lead to a new sale at $ 3,730 and $ 3,704.