S&P 500 Deep In Chop Consolidation

Bond Market Flex

Where, too, now for the S&P 500?

The bond market is signalling that it’s concerned about the inflationary consequences of the Trump administration’s tariffs. The 10-year yield spiked last week while the S&P 500 and the U.S. dollar collapsed.

The Federal Reserve echoed the bond market’s concern about inflation and will, for now, remain on the sidelines. Trump’s challenge to the FED to reduce interest rates and his attempt, behind the scenes, to remove Chair Powell is unlikely to change the FED’s position.

In our post on 22 March, we noted:

“There are increasing signals that dollar outflows are growing, leading to a paradigm shift.

Investors traditionally expect the S&P 500 to perform well in periods of dollar weakness. However, if the market is to recover, it will likely require a strengthening dollar.”

S&P 500 And Market Dislocation

Last week, the dollar index fell from 102 to 99. The 10-year yield moved up to 4.49% from 4%. When yields increase, and the dollar goes lower, that decoupling is not a good sign for the dollar or the S&P 500.

When the S&P 500 goes lower, the 10-year yield tends to decrease as investors seek safety in treasuries and demand increases.

The dislocation in the correlation between the S&P 500, the dollar index and the 10-year yield last week is a warning sign. This likely prompted the pause in reciprocal tariffs.

That said, the genie is out of the bottle, and the rotation out of U.S. assets and the dollar, coupled with the selling of U.S. treasuries and flight to gold, is unlikely to change in the short term.

While the 90-day pause in implementing the reciprocal tariffs had a positive impact on the markets, it also extended the window of uncertainty by 90 days.

Without clarity regarding the final tariff position and announcements on tax cuts, deregulation, and energy production, the S&P 500 will likely remain range-bound at current lower levels.

S&P 500 Key Levels:

The S&P 500 opens in positive gamma today.

The gamma flip zone sits at 5260, the call resistance level is 5495, and the put support is 4995.

As noted in our previous post, we expect chop consolidation and the S&P 500 to remain range-bound at these lower levels for the remainder of the month as it attempts to re-price.

While the low at 4850 looks like the bottom of the range (expect a retest), the S&P 500 needs to make a higher high and close above 5480 to confirm the upper boundary of the range.