S&P 500, Nasdaq 100 body-slammed on recession angst, April US inflation data eyed

U.S. stocks plummeted on Monday, extending the relentless sell-off of the previous five weeks, weighed down by recession fears and monetary policy angst. At the market close, the S&P 500 sank 3.2%, losing the psychological 4,000 level and ending the afternoon at 3,991, its lowest level since April 2021. The Dow Jones, for its part, sank 1.99% 32,245, deepening its run into correction territory. Meanwhile, the Nasdaq 100 led the rout on Wall Street, plunging 3.98% to 12,187, a fresh low for 2022. After today's pullback, the tech index accumulates a 27% retreat from its 2021 high.

There was no specific catalyst during the session that caused the monumental and broad-base collapse, other than growing concern that the rising interest rate environment needed to squash inflation may trigger a hard landing for the U.S. economy, a dreadful scenario for corporate earnings and risk assets.

Although the likelihood of a near-term recession remains low due to a healthy labor market and strong consumer spending, the outlook is not static and could change with short notice. For instance, if the equity market continues to drop at the pace of recent weeks, confidence may deteriorate further due to the "wealth effect," leading equity-invested households to sharply reduce discretionary spending, a situation that could slow GDP growth to a crawl.

Looking ahead, the U.S. economic calendar lacks major releases on Tuesday, but Wednesday will bring one high-impact event: the latest inflation report. For sentiment to improve, the data will need to confirm that the consumer price index topped out in March and is starting to come down meaningfully, otherwise the selling momentum is unlikely to abate on Wall Street any time soon. In terms of forecasts, April CPI is expected to come in at 8.1% y/y from 8.5% in the previous month, while the core gauge is seen rising 6% y/y from 6.5% y/y previously.

NASDAQ 100 technical outlook

The Nasdaq 100 nosedived on Monday and set a new 2022 low after sliding below the March 2021’s trough near 12,210, an event with bearish implications for price action. If this breakout is sustained in the coming days, selling pressure could accelerate, paving the way for a move towards the next critical support at 11,600, followed by the psychological 11,000 level. On the flip side, if buyers return and the index manages to climb above the March 2021 low again, the first hurdle to consider appears at 12,645 and 13,000 thereafter. With sentiment deteriorating every single day and volatility on the rise, however, the path of least resistance is lower (for now).

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