S&P 500 Tags New Yearly High on Debt Ceiling Optimism

S&P 500 (ES1!) News and Analysis

• US stocks rose despite the strength of the dollar and higher yields
• Traders are raising interest rate expectations as the default risk in the US recedes
• Key levels for an upward continuation of the S&P 500 should be noted
• The analysis in this article is used chart patterns and key Support and resistance levels. For more information visit our comprehensive website Educational library

US stocks are rising despite the strength of the dollar and higher yields

Sentiment has taken a big step forward this week as news emerged of a possible deal this weekend or sometime next week in connection with raising the US debt ceiling. Markets no longer seem to be pricing in the possibility of a US default, which would have unimaginable ramifications not just for the US but for the broader market as a whole.

With concern over the debt ceiling waning, markets are left to contemplate the growing possibility of another 25 basis point hike from the Federal Reserve early next month as inflation shows little sign of improvement. According to the CME FedWatch tool, market rates have a more than 30% chance of a rate hike, up from 28.4% yesterday and 15.5% last week.

Source: CME FedWatch, prepared by Richard Snow

US yields, especially the 2-year and 10-year Treasury notes, continue to rise, driving up the dollar in the process. However, this did not seem to affect the index but it could serve to limit the upside of the S&P 500 as the index briefly hit a new yearly high.

In addition, this week the Fed’s speakers expressed their openness to another hike if the data deems it necessary. Later today (16:00 UK time) Fed Chair Jerome Powell is due to speak at a conference hosted by the Fed titled “Monetary Policy Perspectives”.

S&P 500 technical levels to consider

The index’s recent upward momentum had pushed it to a new 2023 high, trading above 4,200 and February’s high of 4,008.50. The recent move is significant given the previous inability to break above 4,200 for more than a day. In case the index heads into the weekend away from 4200, further upward resistance comes at 4311.75, which is the 61.8% Fibonacci retracement of the major sell-off in 2021-2022. Immediate support comes at 4208.50, followed by 4180, and finally 4110.

S&P 500 E-Mini Futures Daily Chart (ES1!)

Source: TradingView, prepared by Richard Snow

– Posted by Richard Snow for DailyFX.com

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