US indices posed a recovery on Tuesday, however, investor confidence hasn’t resumed as the health of the US economy looks bleak amid soaring inflation and quantitative tightening.
On Tuesday, June 21, all of the top three US Stock indices registered a healthy recovery. The Dow Jones Industrial Average (INDEXDJX: .DJI) rallied 2.15% jumping more than 600 points and closing above $30,500 levels.
Similarly, the S&P 500 (INDEXSP: .INX) followed with 2.45% gains and 3,764.79 making its best performing day this month. More than 441 stocks of the S&P 500 traded in the green on Tuesday. The tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) also jumped 2.5% closing above 11,000 levels.
Yesterday’s recovery was a major relief to investors after facing week-long intense selling pressure. However, analysts are still not strong about a continued recovery going ahead and it must just be a dead cat bounce. Speaking to CNBC, Sam Stovall, chief investment strategist at CFRA Research said:
“The outstanding question is whether this is simply a bounce or the bottom. I think that this could certainly be a bounce but not the bottom because the one missing ingredient is a fear-based capitulation sell-off.”
Stovall thinks that the S&P 500 is likely to fall 30% from its all-time high i.e. it might touch 3,200 at the bottom. However, Stovall is not alone to predict further downside ahead.
S&P 500 is coming into some resistance here, just below 3,800.
The market will want to test that 3,400 pre-COVID high in the coming weeks, IMO. $SPY $SPX pic.twitter.com/jSPx8r3XqJ
— Justin Bennett (@JustinBennettFX) June 21, 2022
Big bounces similar to Tuesday’s are a very common trait during the bear market. Since the bear market started this January, the S&P 500 has popped more than 2% on 10 different occasions. However, every time it lost its gains only to trade lower later. Thus, analysts say that Tuesday’s bounce isn’t sustainable since there’s no news or major catalyst driving it.
All Eyes on the Fed
The US Federal Reserve is scheduled for a two-day meeting with the US Congres starting today, June 22. The Fed shall be discussing the recent interest rate hike and further measures to bring inflation under control.
Amid the weakening economic outlook, investors have been losing confidence in the market as well as Fed’s ability to navigate a soft landing. In a report published Tuesday, Credit Suisse’s David Sneddon wrote:
“Increasing fear of slowing global growth is rearing its head and in our view will start to replace inflation as the major focus for investors going forward as we see whether or not these concerns are justified. From a technical perspective, we are starting to see a deteriorating picture for Commodities and especially Industrial Metals, in line with these concerns.”
The Fed has a crucial task at hand to balance between inflation and economic slowdown. Many analysts have predicted that the US is heading for a recession.
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