Bottom In For The S&P 500?

Expect Further Volatility

Uncertainty has ruled the S&P 500, and this week, we have the March FOMC and the FED’s statements of economic projections to add to that uncertainty.

With inflation data still looming large and traders on edge, will the FED signal a pivot or double down on the current stance?

Either way expect further volatility, and any surprise should be expected.

There are investors who think that Trump and Bessent are following a path that is out of step with the Federal Reserve and that they are trying to force Powell to cut interest rates.

In reality, Bessent and Powell are totally aligned. They meet weekly, and there’s a lot of coordination between the Treasury and the FED.

Inflation

Powell’s primary headache has been getting inflation back to 2%.

He’s been fighting the Biden administration’s loose and dovish fiscal impulse, which has resulted in significant gains in the markets over the last two years.

The best way to kill inflation is obviously recession. Neither Bessent nor Powell want that.

However, meaningfully lowering stock prices and pulling back the fiscal impulse simultaneously will facilitate the Trump administration’s goal of transitioning from a K-shaped economy to an E-shaped economy.

On that basis, the chaos and uncertainty and the driving down of asset prices are intentional because, from their perspective, they want to recalibrate the economy in much the same way that Regan did.

Detox

Bessent has signalled that there will be a detox period, likely lasting three to four months.

That may explain why whenever the markets and risk assets meaningfully bounce, Trump hits the airwaves with a new tariff idea or some other agent of chaos to slam the market back lower.

The S&P 500 is not in the danger zone yet. However, there will be a buyable dip sometime between now and early into the second quarter.

However, there will likely be a further and potentially deeper pullback in the second half of the year.

S&P 500 Key Levels:

The S&P 500 opens today in negative gamma.

As predicted, the S&P 500 entered correction territory (-10%) last week before rallying (and in the absence of any Trump tweets) on Friday.

Last week, the gamma flip zone moved down to 5655, call resistance moved to 5777 and put support to 5496.

Bulls need to break through and close above the gamma flip zone today. That could signal that the rally last Friday was not a dead cat bounce and that the S&P 500 has put in a low.

If bulls meet resistance at the gamma flip zone, expect further downward momentum this week.