The S&P 500 index, a key benchmark for the U.S. stock market, is unable to stop its downward trend and remains under pressure around the 5,187.67 level, hitting an intra-day low of 5,165.86. However, the S&P 500’s downward trend was driven by concerns over high interest rates and their impact on economic growth.

The Federal Reserve’s hawkish stance, with indications of a prolonged period of elevated rates, has made investors cautious as it could lead to higher borrowing costs, reduced corporate earnings, and increased market volatility in the S&P 500.

Strong U.S. Dollar and Hawkish Fed Weighing on S&P 500 Amid Weakening Consumer Sentiment

On the US front, the strong U.S. dollar was another key factor weighing on the S&P 500. However, the US dollar’s strength was driven by expectations that the Federal Reserve would keep interest rates high for an extended period to control inflation.

In the meantime, the comments from key Fed officials, such as Boston’s Susan Collins and Minneapolis’s Neel Kashkari, indicate that reducing inflation to the target 2% will take longer than anticipated, reinforcing the hawkish stance.

As a result, the prospect of persistently high rates affects corporate earnings, especially for multinational companies in the S&P 500 that earn a significant portion of their revenue overseas.

Hence, the stronger dollar can lead to reduced profitability for these companies when foreign earnings are converted back into dollars, impacting the S&P 500’s overall performance.

Investors are also watching key U.S. data releases, such as the University of Michigan’s Consumer Sentiment Index, which is expected to decline from 77.2 in April to 76.0 in May.

This dip suggests consumers may be feeling less hopeful about the economy, potentially influencing spending and, consequently, corporate earnings.

Geopolitical Tensions in the Middle East Impacting Market Volatility and Investor Confidence

On the geopolitical front, the ongoing geopolitical tensions in the Middle East have boosted uncertainty in the stock market. However, the conflict between Israel and Hamas has escalated, with ceasefire negotiations facing challenges and humanitarian crises worsening.

U.S. President Joe Biden’s recent statements opposing offensive weapons supply to Israel for attacks on the Rafah border crossing underscore the growing international concern over the conflict. Hence, geopolitical instability can increase market volatility, affecting investor confidence in the S&P 500.

The uncertainty surrounding the conflict’s resolution and its broader implications can lead to risk-off behaviour among investors, contributing to downward pressure on the index.

The S&P 500 Index began the trading day at $5187.66, showing minimal fluctuations while staying near its recent highs, which suggests a persistent bullish sentiment. The market’s technical setup on this Wednesday presents a mix of opportunity and caution.

Key Price Levels:

The pivot point for today is set at $5118.21, indicating a pivotal level for traders to watch. In terms of resistance, the index faces its first major hurdle at $5200.43. If surpassed, the next challenges lie at $5226.45 and $5263.18, which could test the market’s upward strength.

On the downside, immediate support is observed at $5096.37. Should the index retract further, it would encounter additional support levels at $5062.70 and $5025.05. These levels are crucial in preventing significant declines and will likely serve as stabilization points if bearish pressures increase.

Technical Indicators:

The Relative Strength Index (RSI) stands at 65.59, approaching overbought territory. This condition suggests that while upward momentum is strong, there might be limited room for further escalation without some pullback.

The 50-day Exponential Moving Average (EMA) at $5118.21, coinciding with the pivot point, underscores its significance as a key technical indicator.

Market Context:

The index’s performance is also influenced by key earnings reports expected today from major companies such as Constellation Energy and Warner Bros Discovery. The outcomes of these reports could sway investor sentiment and impact the broader market dynamics.

Conclusion:

With the S&P 500 hovering above significant support levels and facing clear resistance markers, traders should adopt a cautiously optimistic approach. A break above $5165 could further affirm the bullish outlook, whereas a drop below the pivot point may necessitate a defensive strategy to mitigate potential losses.