- The S&P 500 initially attempted a rally during Monday's trading session, but gains were quickly reversed as the area above the 4300 level continues to pose a significant challenge.
- The market appears to be in a holding pattern, awaiting the outcomes of the upcoming Federal Reserve and European Central Bank meetings.
- Despite this, the market continues to exhibit a bullish trend, fueled by optimism about a rapid global economic recovery. However, it's important to acknowledge that this bullishness is largely driven by liquidity, as the market has become increasingly detached from economic headwinds since the Great Financial Crisis.
The market's reaction to the Federal Reserve statement will be particularly interesting to observe. It's worth noting that the 50-Day Exponential Moving Average, currently approaching the 4200 level, could act as a floor for any potential selloff, unless the Federal Reserve explicitly signals a continuation of tightening. On the upside, a break above the highs of both Friday and Monday could push the market into a more pronounced "buy-and-hold" phase. While it may be challenging to maintain a bullish stance before the Federal Reserve announcement, this seems to be the prevailing sentiment among many investors. However, markets are fickle to say the least, so a change could happen suddenly.
Performance is Currently in a State of Anticipation
An important aspect to consider is that five stocks currently constitute 25% of the S&P 500. Given that this is not an equal-weighted index, it might be more accurate to view it as an ETF on some of the world's largest companies, rather than an indicator of the US economy's overall health. If this remains the case, and there's no indication of change, the market will likely continue to defy gravity at every opportunity. If key players like Apple continue to perform well, the S&P 500 will likely follow suit. It's noteworthy that the equal-weighted S&P 500 ETF remains essentially flat. This tells you just how one-sided the buying truly is.
In the end, the S&P 500's performance is currently in a state of anticipation, awaiting the outcomes of central bank meetings. Despite the market's persistent bullishness, largely driven by liquidity, the upcoming Federal Reserve announcement could significantly influence market dynamics. The market's composition, heavily weighted towards a few key players, continues to drive its performance, underscoring the importance of these companies in shaping market trends.
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