The S&P 500 futures market has been rather negative for the entire month of May, and June does not figure to be much better. We will more likely than not continue to see sellers every time we try to rally, as Wall Street continues its temper tantrum due to a lack of free and easy money. As the Federal Reserve tightens monetary policy, this will continue to put negative pressure on risk assets, with the S&P 500 being particularly vulnerable.
Keep in mind that there are a lot of concerns when it comes to the US economy, not the least of which will be the US consumer pulling away from spending. After all, 70% of the US economy is based on consumption, and we are focusing on a major shift in attitudes. Most consumer confidence-related economic figures continue to slump, meaning that spending is most certainly going to slow down. If this is going to be the case, then profits will have to be readjusted for future earnings. The one consistent message that you hear from CEOs around the United States is that future earnings are murky at the very least, and a lot of them are starting to suggest that the supply chain is in worse shape than we had thought. In that scenario, it’s difficult to make a profit.
Now that the market has broken solidly below the 4000 level, that should offer significant resistance to any attempt to recover. If we break above the 4000 level, that would obviously be a bit of a victory, but not necessarily the be-all and end-all of a turnaround. On the downside, the 3500 level underneath could be a target, but I would anticipate that would probably cause some type of meltdown. Regardless, it’s very likely that the month of June is going to be more of a “fade the rally” type of situation, at least until the Federal Reserve changes its attitude.
Right now, as long as inflation remains hot, it’s difficult to imagine that the Federal Reserve will be able to do anything other than tightening monetary policy. The market will continue to throw a tantrum, especially if interest rates continue to rise as the “risk-free rate of return” will continue to be a higher hurdle to overcome for equities. It’s not that we won’t get the occasional rally, but I would look at each rally as being suspicious.
