S&P 500 Jolted By Fed’s Outlook and 2nd Wave of US Coronavirus Cases

Summary:
• Rising coronavirus cases in the US, as well as the Fed's grim outlook for the US economy seems to have set off a renewed round of selling in the S&P 500.

The S&P 500 index is taking a hammering this Thursday as a slew of gloomy news hit the markets to set off safe-haven plays. Several factors are driving the selloff, and top on the list is the grim projection of the Fed in yesterday’s economic projections report. The rise in continuous jobless claims, job cut announcements from top companies such as Lufthansa and a new wave of increases in coronavirus infections in 21 states in the US has sparked off renewed market fear. The S&P 500 is presently down by 3.54% and trades at 3076.8.

The Fed projected unemployment to register at 9.3%, more than double its long-running forecast of 4.1%, and expects the US GDP to shrink by 6.5% on an annualized basis. With other headlines surrounding the coronavirus, job losses and rising continuous jobless claims despite a stellar jobs report last week, markets suddenly seem to have woken to the reality that things have not gotten any better fundamentally speaking.

Airline stocks and holiday cruise company stocks are feeling the heat; Carnival Corp is shedding 13.84%. Lufthansa’s planned axing of 22,000 jobs following its expensive bailout by the German government seems to have shaken up airline stocks. Delta Airlines, United Airlines and American Airlines are all down by double-digit percentage figures on the day.

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Technical Outlook for S&P 500

The S&P 500 daily chart shows a downside gap which was not filled, with the index ticking lower, towards the ceiling of the previous resistance zone at 3028.3. The break below 3137.0 requires confirmation; a confirmed breakdown validates the price move towards 3028.3. The former resistance zone, which now forms a wall of support, still maintains 2961.4 as its floor. Only a break of this zone to the downside will allow an extension of the decline towards 2938.7, 2844.3 and 2798.3. 2707.7 only becomes relevant if price breaks below 2844.3. 

On the flip side, a bounce on the price floor preserves the uptrend by establishing another higher low. This scenario gives room for a retest of the 3137.0 price area, with 3257.3 continuing to stand as the immediate resistance target. An advance to 3335.5 needs a return to risk-on sentiment to stand.