The Stock Market Slips Ahead Of Fed's Policy Meeting As Investors Brace For Persistently High Rates

BY Benzinga | ECONOMIC | 05/01/24 11:24 AM EDT

The SPDR S&P 500 was falling about 0.25% lower Wednesday ahead of the Federal Reserve's decision on interest rates.

The central bank is widely expected to hold rates steady but investors will be focusing on Fed chair Jerome Powell's comments at the press conference following the decision for clues as to when the Fed may begin easing.

After the SPY ran about 27% higher between Oct. 27 and March 28, the ETF entered into a downtrend, retracing about 4.6% from the all-time high of $524.61. Whether or not downward pressure across major equities will continue through to the end of the second quarter remains to be seen but for at least the short term, from a technical analysis perspective, the market ETF is showing weakness, trading mostly sideways on lower-than-average volume.

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More experienced traders who wish to play the SPY either bullishly or bearishly may choose to do so through one of two Direxion ETFs. Bullish traders can enter a short-term position in Direxion Daily S&P 500 Bull 3X Shares (SPXL) and bearish traders can trade the inverse ETF, Direxion Daily S&P 500 Bear 3X Shares (SPXS) .

The ETFs: SPXL and SPXS are triple leveraged funds that track the movement of the SPY, seeking a return of 300% or -300% on the return of the benchmark index over a single day.

It should be noted that leveraged ETFs are meant to be used as a trading vehicle as opposed to long-term investments

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The SPY Chart: After closing at the $495.16 level on April 19, the SPY has been trading mostly sideways near the $500 mark, within a slight uptrend pattern. The most recent higher high within the pattern was formed on Monday at $510.75 and the most recent confirmed lower low was printed at $497.49 on April 25.

  • On Tuesday, the SPY dropped 1.29% from its opening price and on Wednesday, the ETF was trading slightly lower on very low volume and working to print a small doji candlestick, which could indicate the next local low has occurred and a bounce will take place on Thursday.
  • For the uptrend to continue on the daily chart, the SPY will eventually need to close above the most recent higher high. If that fails to happen, the uptrend will be negated and another downtrend could be on the horizon.
  • If the SPY forms another higher high, the ETF will regain the 50-day simple moving average (SMA) as support, which would give bullish traders more confidence. If the SPY retraces significantly, it's likely to find support, at least temporarily, at the 200-day SMA.
  • The SPY has resistance above at $502.87 and at $510.13 and support below at $496.05 and at $491.42.screenshot_592.png

Image sourced from Shutterstock

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.