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20.03.2025 10:05 AM
Fed's message music to bulls' ears
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The Fed is not throwing a lifeline to the S&P 500, but does it need one? Lifelines are for those drowning, while the market is merely spooked by a fleeting recession scare. Powell's tone at the post-FOMC press conference was bot just conciliatory—it was calming. The head of the Fed signaled control, and that was enough to lift the broad stock index.

Recession risks may be higher, but they are not alarmingly so. Inflation remains sticky, but there is no reason to panic. The impact of tariffs is transitory. The White House's protectionist stance brings uncertainty, but the Fed has time to wait. The stock market, which had lost about $5 trillion in market capitalization, was desperate for good news. Powell's calm gave traders the confidence to add long positions in the S&P 500 index.

The broad stock index logged its strongest post-FOMC reaction since July, as policymakers' reluctance to radically adjust the federal funds rate forecast was exactly what markets wanted to hear. Investors stopped fretting over recession risks—and what more could a battered S&P 500 ask for?

S&P 500's response to Fed meetings: patterns and trends

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The Fed slightly raised its inflation forecast from 2.5% to 2.7%, while lowering its GDP growth projection for 2025 from 2.1% to 1.7%. In effect, this reduced the chances of a soft landing and edged the economy closer to stagflation—an environment that equity markets do not favor.

According to Bloomberg estimates, the probability of a soft landing has shrunk to 10%, while the likelihood of stagflation has climbed to 40%. The chance of a recession now stands at 35%, while the risk of a hard downturn is estimated at 15%. This means that the odds of an unfavorable scenario for the S&P 500 are hovering around 90%, hardly an environment conducive to a sustained rally.

The Devil is in the details. While the Fed's median rate projection remained unchanged—still pointing to two rate cuts—the details tell a different story. In December, 15 Fed officials backed this outlook. By March, that number had dropped to 11. Meanwhile, eight Fed policymakers now expect only one rate cut or even less in 2025. That is bad news for the S&P 500.

Fed's interest rate projections

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Adding to market jitters, Donald Trump's call for the Fed to accelerate rate cuts—declaring April 2 as "America's Liberation Day"—only fuels uncertainty. The White House's tariffs are just around the corner, and there is reason to believe they will be substantial. As that moment approaches, fear will creep back into the markets, bringing with it another wave of S&P 500 sell-offs.

From a technical standpoint, the daily chart shows that S&P 500 bulls have launched a counterattack, attempting to regain control. However, the bearish momentum remains dominant. A pullback from the resistance levels of 5,750 and 5,815, or a break below the pivot level of 5,670 and the fair value of 5,620 should be seen as selling opportunities.

Marek Petkovich,
Analytical expert of InstaForex
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Wave analysis
EUR/USD Analysis – March 31st The wave structure on the 4-hour EUR/USD chart is at risk of transforming into a more complex formation. On September 25 of last year, a new downward structure began forming
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GBP/USD Analysis – March 31: The Pound Takes a Break The wave structure for GBP/USD remains somewhat ambiguous, though overall acceptable. Currently, there is still a high probability of a long-term downward trend formation. Wave 5 has taken a convincing
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