SPY confirmed the break below its 200 day moving average on December 6, 2022. Its also testing uptrend channel support with a breakdown out of the channel. The MACD has also given a sell signal.
Following four consecutive 75 basis-point increases, the Fed will likely shift to a half-point move at its meeting next week, according to Fed officials, including Chair Jerome Powell. But contrary to what the Federal Reserve would like to see in its fight against inflation, Friday’s employment report showed robust wage growth.
A smaller increase would signal the beginning of a new phase in the central bank’s tightening drive, but the current pace of wage growth could force more officials to raise their benchmark federal funds rates above 5 percent next year.
BOTTOM-LINE: We are in a good news is bad news environment, where good economic news suggests the Fed has further to go in its rate hikes in order to bring down inflation.
Shifting Institutional Investor Sentiment
The DOW is down -500 points between December 5 – 6, 2022. Some institutional investors are positioning for interest rates to keep climbing through May 2023. Some institutional investors are betting that there will be no rate cuts in 2023.
Rumors are circulating that institutional investors expect the Fed to raise rates by 50 basis points next week and then another 25-50 basis point rate hike in February 2023. Then two more 25bp hikes in March and May and no cuts until 2024 as inflation remains more resilient than originally projected by the Aladdin AI.