As Dow Jones, S&P 500 plunge on Powell testimony, is a larger Fed rate hike next?

Wall Street received a reality check on Tuesday as the Dow Jones and S&P 500 sank 1.72% and 1.53%, respectively. The key culprit was what traders were anxiously anticipating, testimony from Federal Reserve Chair Jerome Powell before the Senate Banking Committee.

The key takeaway from Mr. Powell was that he noted that the central bank was prepared to speed up the pace of hikes again if warranted. Of course, this would continue to be influenced by incoming economic data. Furthermore, he noted that the Fed is likely looking at a higher rate peak than expected.

This testimony follows recent signs that inflation might be stickier than previously seen. The latest CPI and PCE report (the latter of which is the central bank’s preferred inflationary gauge) showed signs that the pace of disinflation slowed.

By the end of the day, market pricing started to favor a 50-basis point rate hike this month as opposed to 25. Treasury yields soared, sapping the appeal of stocks, inducing classic risk aversion. This leaves Asia-Pacific markets vulnerable heading into Wednesday’s trading session.

Dow Jones technical analysis

The Dow Jones turned lower after rejecting the 50-day Simple Moving Average (SMA). This also followed a breakout under a Symmetrical Triangle chart formation. This is placing the focus on immediate support, which is the 38.2% Fibonacci retracement level at 32709.

Dow Jones daily chart

S&P 500 technical analysis

Meanwhile, the S&P 500 rejected the ceiling of a bearish Rising Wedge chart formation. This is leaving the index also facing the 38.2% Fibonacci retracement level, which here is sitting at 3938.61. Confirming a breakout under the latter would open the door to an increasingly bearish technical bias.

S&P 500 daily chart

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