S&P 500
The Dow Jones index declined in the overnight session as investors reacted to the latest testimony by Janet Yellen and Jerome Powell. It fell to $32,423, which was 2.2% below the all-time high of $33,220. The fear and greed index, on the other hand, has dropped from last week’s high of 56 to the current neutral level of 49.
What happened: Janet Yellen, the Treasury Secretary, and Jerome Powell, the Federal Reserve chair, held their first day of congressional testimony yesterday. While they talked on several issues, the main outcome of the session was that Powell committed to continue with the expansionary policies. On her part, Yellen said that Congress will need to hike taxes to fund the ambitious $3 trillion spending package.
Why it matters: To a large extent, an expansionary Fed is usually a good thing for Dow Jones because it lowers their cost of borrowing. However, higher taxes could have a negative impact on the companies earnings. Biden’s proposal called for hiking the overall corporate tax from 21% to 28%.
Meanwhile, the fear and greed index has eased quite a bit as investors continue watching the performance of the bond market. The junk bond demand is the only subsector that is in the extreme greed zone. Safe-haven demand and put and call options are in the fear zone while the other sub-sectors are in the neutral zone.
The four-hour chart shows that the Dow Jones index has been in a strong upward trend recently. It was forming an ascending channel pattern a few weeks ago. It managed to move past the upper side of this channel on March 11. However, the index has managed to move below this ascending channel in the overnight session.
Therefore, if the bearish outlook remains, there is a possibility that it will keep falling as bears target the lower side of the channel at $31,000. This is a 4% decline from the current level. However, a move above the all-time high of $33,235 will invalidate this trend.
