S&P 500 analysis after the Fed doubled the tapering pace

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S&P 500 (SPX) continues to trade in a bull market after the U.S. central bank announced tapering measures to fight against inflation.

The U.S. Federal Reserve increased the reduction in bond-buying on a monthly basis from $15 billion to $30 billion.

Pulling off support programs is the first step towards tightening, and the chances of two or three rate hikes in 2022 have increased.

The United States reported that inflation rose to 6.8% in November, the highest level in nearly 40 years, representing a serious threat to the economy.

The U.S. Producer Price Index jumped to 9.6% YoY in November, while Ian Shepherdson, chief economist at Pantheon Macroeconomics, predicts that interest rates would increase in May despite the regulator’s outlook of “much better” inflation for the end of 2022 through early 2023.

Fed Chair Jerome Powell said that inflation had spread more than previously expected, and according to some analysts, it could take years for rates to be strong enough to have a significant impact on inflation. Ian Shepherdson, a chief economist of Pantheon Macroeconomics, added:

Core inflation in the U.S. is expected to peak in spring next year, which could prompt the Federal Reserve to raise rates as early as in March, depending on the severity of COVID-19’s omicron variant.

Monetary tightening is usually seen as a drag on stocks, but for now, there has been no noticeable negative effect on the U.S. stock market.

The positive news is that the Omicron variant of coronavirus may have smaller effects on the U.S. economy than initially feared, and the U.S. President Biden reassured investors that the government would not resort to strict lockdowns to curb the rise of infections caused by the omicron variant.

U.S. economic growth, measured by gross domestic product, was revised higher in the third estimate for Q3 to 2.3% from 2.1%; still, the rising inflation, covid pandemic, and the world’s supply chains crisis represent a serious issue for economic stability.

The positive trend remains intact

The S&P 500 (SPX) has found strong support above 4,500 points, but it is still not able to surpass 4,800 points, which represents the current resistance level.

Data source: tradingview.com

If the price falls below 4,500 points, it would be a firm “sell” signal, and we have the open way to 4,300 points.

Summary

S&P 500 continues to trade in a bull market even though the U.S. central bank doubled the tapering pace to fight against inflation. Monetary tightening is usually seen as a drag on stocks, but for now, there has been no noticeable negative effect on the U.S. stock market.

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