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Bearish Opening for S&P 500 (SPX), Dow Jones After GS Warning

The S&P 500 and Dow Jones had one of the best quarters ever in Q1, but today they are retreating lower, after some warning from Goldman Sachs about overbought levels in stock markets. Today we saw a major gap lower at the opening for both the US 50 SPX and in the DJI index, but this looks like a good opportunity to open a long term buy S&P 500 signal.

S&P 500 Chart Daily – The 20 SMA Keeping the Trend Bullish

S&P500 futures rose early on Monday above 5,250 points after the index set a new record high during the previous holiday-shortened week. This suggests continued optimism among investors regarding the market’s performance but today we saw a major bearish opening which has sent the price to 5,200 points.

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The anticipation of an interest rate drop by the Federal Reserve is cited as one of the factors driving the influx of wealth into the market, however, the odds of a June FED rate cut have declined below 60% now. Investors are eagerly awaiting any signs of decreasing borrowing costs, which could further boost market sentiment.

As we enter the second quarter, there’s a note of cautious optimism regarding the S&P 500’s price. While the stock index closed the first quarter on a high note, posting its strongest performance since 2019 with a more than 10% increase, there has been a sharp reversal following cautionary remarks from Goldman Sachs and some comments from FED member Loreta Mester today. But, I don’t think that this pullback will continue for too long, as the 20 SMA is already acting as support.

Overvalued Stocks According to Goldman Sachs

According to the giant multinational finance firm, stock markets are overvalued, with the weighted S&P 500 currently trading at 17X compared to forward earnings, which is 10% more than their fair value conclusion. They draw the conclusion that high valuations often lead to lower returns ahead. However, they note that this trend hasn’t manifested yet, mentioning that the equal-weight index’s valuation typically peaks about four months after exceeding the 10% overpriced barrier. This threshold was surpassed in February, indicating that the index may have reached or is approaching its valuation peak.

Cleveland Fed President Loretta Mester Speaking About  the Economic Outlook

  • Still expects the Fed can cut rates later this year but not at next meeting
  • Doesn’t see case to cut at the next Fed meeting
  • Fed policy in a good place to navigate risks
  • Fed can cut rates gradually if economy meets expectations
  • Is seeing some slowing in the economy, but it’s rebalancing.
  • Disinflation can happen despite economic strength
  • Does not think the neutral rate will be as low as it was
  • Expects slower employment growth, slight uptick in the unemployment rate.
  • Healthy labor markets should remain in place.
  • Average family still struggling with inflation, explains sour consumer mood
  • Fed doing a lot of work to make sure banks ready for discount window.
  • Banks commercial real estate risks are manageable
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Skerdian Meta
Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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