Stocks Pop Then Drop Following A Hawkish U.S. Fed

 | Sep 22, 2022 09:47

Stocks were up yesterday to start the day, rising by around 70 bps, then after the Fed announcement came, they dropped sharply. Then on schedule, around 2:30, the implied volatility melt started helping to bring stock higher and to their intraday high, up around 1.3%. But the rally didn’t last, as sellers emerged and the implied volatility rip faded. The index gave back all of the gains, finishing at the lows of the day down around 1.7% and closing below support at 3790.

As I have noted for some time, I think the S&P 500 and the Nasdaq are heading for new lows, and yesterday’s Fed meeting seemed to confirm that is likely where stocks are heading. The dot plots made it very clear that the Fed will not be cutting rates anytime soon and is front-loading hikes, with the potential for 125 bps of hikes between now and year-end, and there are only two meetings left.

h2 S&P 500 /h2

The break of support at 3,790 could be significant because the next gap that needs to be filled for the S&P 500 comes at around 3,675, which is right back at the June lows. Additionally, the broadening wedge is in the middle of playing out, which would also indicate that the S&P 500 could be heading to new lows.