S&P 500 and the anniversary to forget

On the first anniversary of the S&P 500’s January 4th, bull market high, U.S. equity markets marked the occasion by closing lower on fears of recession, higher interest rates and an upcoming hit to corporate earnings.

None of the fears mentioned is particularly new. Along with surging inflation, the headwinds above triggered a 19% fall in the S&P 500 for the year. At the same time, the yield on the two-year Treasury note surged from 0.73% to 4.88%.

Most notably, 2022 marked just the third time since 1926 that both U.S. stocks and bonds lost money.

Shares in 2023

In a sign of how dramatically sentiment shifted over the past 12 months, embattled E.V. maker Tesla fell more than 14% overnight after missing its production targets for a third consecutive quarter. Its share price is now down over 75% from its bull market high.

Meanwhile, bellwether tech stock Apple fell 3.75% overnight to close near $125.00, a far cry from the $182.94 high it struck precisely one year ago.

"If the opening session of the new year is an indication, the first half of 2023 is shaping as another challenging period as investors await clarity as to whether the U.S. economy completes a soft landing or enters a recession. And whether Chinese authorities can successfully reopen the Chinese economy and counter the slowdown in other regions."

What will drive markets in the short term?

In the short term, there is some tier-one U.S. macro data on the calendar this week. However, none are expected to alleviate current concerns.

• U.S. - ISM (Wednesday): The ISM manufacturing index is expected to fall from 49 to 48.5 in December, reflecting another contraction in factory activity and slower growth.
• U.S. - FOMC Minutes (Thursday): At its meeting in December, the FOMC raised rates by 50bp and raised its projection for the peak fund rates in 2023 by 50bp to 5-5.25%. The minutes to be released on Thursday will be scanned for details on the Committee's views on the pace of future rate hikes, the terminal rate, and further information on growth and inflation forecasts.
• U.S. - Non-Farm Payrolls (Friday): The market is looking for non-farm payrolls to increase by 200k and for the unemployment rate to remain stable at 3.7%.

What do the charts say?

Our technical view is similar to the one outlined in Mid-December here. The rally in the S&P 500 from the October 3502 low to the 4180 December high is viewed as a countertrend.

The S&P 500 needs to reclaim resistance at 3910/20 and then see a sustained break above the 200-day moving average now at 4010 and the downtrend resistance at 4050 (from the bull market 4808 high) to negate downside risks.

On the downside, a break of support and recent lows at 3800/3785 would warn of a push into the 3700/3600 support zone.

S&P 500 daily chart

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