The S&P 500 Can Repeat the March Performance This Month

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  • The SPDR S&P 500 ETF Trust (SPY) is struggling to find footing.
  • Soon it may be too late to stop the slide.
  • SPY stock may still have reasons to rally.

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The stock market has had better starts of years. The sellers have been in complete control for a while. This is somewhat foreign to investors since they’ve have come to rely on the quantitative easing (QE) provided by central banks. The U.S. central bank has supplied Wall Street with steroids for too long. Now they are in the process of imposing restrictive monetary policies to slow things down. I contend that the economy will be fine, in spite of their efforts. And the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) stock can still make new highs.

Today the Federal Open Market Committee (FOMC) will tell us their plans for the next few months. The experts are expecting a 0.50% rate hike, but the comments that follow will be more important. Investors will want to know that Federal Reserve Chair Jerome Powell is watching growth too. While it is important to reduce inflation, it’s more important to not break things doing it.

SPY SPDR S&P 500 ETF Trust $416.38

SPY Stock is Down Because of a Hawkish Fed

During and since last meeting, the FOMC members have expressed extremely hawkish opinions. They have the ability to push the economy into a recession. We’ve already seen a -1.4% GDP report last week, and another one would put the U.S. in a recession. If the Fed continues on its path of destruction, it may end up needing to cut rates by December. Clearly it’s too early to judge, but the fluidity is scaring stocks into corrections. They were dead wrong about the “transitory” rise of inflation. Therefore, they can easily be doing wrong things now.

The SPY has held up relatively well in the face of the bearish headlines. To make matters worse investors have to also overcome fears of international wars. Moreover, the U.S. politicians have started campaigning for the mid-terms. Their tactics usually involve raising the worry wart in all of their constituents.

Things Are Not as Bad as They Seem

So far the bears have had all the tailwinds and for months. Almost all headlines have had very negative connotations from economic to geopolitical. Eventually, headlines lose their sting and their drag on stocks wanes. Even though the headlines reactions are not all positive, companies are reporting strong results.

Case in point, Advanced Micro Devices (NASDAQ:AMD) and Airbnb (NASDAQ:ABNB) reported 70% revenue growth. This is in spite of many hurdles like Covid0-19 and global chip shortages. Clearly risk appetite is still alive and well on Wall Street. Investors merely need a few bits of good news, or the dying of bad ones.

The resilience so far suggests that SPY stock is ready to rally. After the last FOMC meeting markets rallied 11% nonstop. This can happen again this week, or after a final dip into support. The news tide doesn’t usually stay this negative for too long. Besides, as the mega-cap earnings events pass there will an incremental buyer. Corporations that report can resume their buyback programs about two days later. It is likely that they deploy billions in buybacks to support their own stocks.

Moreover, great companies like Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) have support zones here. Others like PayPal (NASDAQ:PYPL) and Salesforce (NYSE:CRM) lost even more and are down to the bone. If their businesses are not dying, then it’s a matter of time before the indices find footing.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Nicolas Chahine is the managing director of SellSpreads.com.