E-mini S&P 500 Sellers Eyeing Psychological Support at 4000

June E-mini S&P 500 Index futures closed sharply lower on Friday as investors reacted to numerous factors including weak sentiment, a shrinking U.S. economy, high inflation and widely anticipated aggressive Fed rate hikes. Compounding these domestic issues are the COVID-related lockdowns in China and worries surrounding the invasion of neighboring Ukraine.

On Friday, June E-mini S&P 500 Index futures settled at 4127.50, down 156.00 or -3.78%. Additionally, the S&P 500 ETF Trust ETF (SPY) finished at $412.04, down $15.77 or -3.69%.

US Economy:  Contraction in First Quarter, Inflation Jump in March

U.S. Gross Domestic Product (GDP) unexpectedly declined at a 1.4% annualized pace in the first quarter, marking an abrupt reversal for an economy coming off its best performance since 1984, the Commerce Department reported Thursday.

The negative growth rate missed even the subdued Dow Jones estimate of a 1% gain for the quarter, but the initial estimate for Q1 was the worst since the pandemic-induced recession in 2020, according to CNBC.

The weak GDP report was followed on Friday by government inflation data. The core personal consumption expenditures price index, which measures costs that consumers pay across a wide swath of items and accounts for how behavior changes in response to market dynamics, increased 5.2% from a year ago, according to the Bureau of Economic Analysis.

Although the core PCE came in below the 5.3% forecast, including volatile food and energy prices, the PCE index accelerated by 6.6%, the fastest pace since January 1982.

The real problem for the economy showed up in the employment cost index, a separate inflation measure. It increased 1.4% in the first quarter from the previous period, according to the Bureau of Labor Statistics. The Dow Jones estimate for that level was 1.1%.

Daily June E-mini S&P 500 Index

Short-Term Outlook

The main trend is down and the momentum into Friday’s close suggests the benchmark index is headed lower. Investors are clearly looking for a value area, which could provide support, but in this rising interest rate environment, it’s difficult to find one because they don’t know how aggressive the Fed is going to be the rest of the year.

Although the PCE report did show signs of easing inflation, when combined with the inflation increase in the employment cost index, it shows the Fed still has a problem. Consequently, markets widely expect a 50 basis point increase during next week’s Federal Open Market Committee meeting, with additional raises to follow.

The Fed’s job also became more complicated following the weak GDP report. Rising interest rates would help reduce inflation, but they could also cause stagflation, or a period of low growth and surging prices.

If we start the new week with S&P investors leaning to the side of caution, then look for the selling pressure to extend into the May 12, 2021 bottom at 4020.50. If this level fails then the psychological 4000.00 will be next. A break through this level could really bring in the heavy sellers.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire