What Now For The S&P 500?

S&P 500 And Economic Growth

In our post “S&P 500 And Trump’s First 100 Days”, we noted that a strong dollar lowers economic growth and that the lead time is around two months.

Given the dollar’s strength in 2024, we expected the U.S. economy to slow down in the first quarter and impact forward growth expectations.

In the post, we noted:

“Trump blamed the Biden administration for high interest rates. The blame game will likely continue, providing Trump with cover to allow the dollar to maintain strength while he conducts trade and tariff negotiations.”

That blame game may also provide cover for the Trump administration to allow weakness in the economy and asset markets at the beginning of the Trump term before implementing supply-side economic policies to “save the day”.

In the short term, this may slow the likely trend acceleration in U.S. liquidity over the next one to two quarters. Expect March to be volatile.

Trump Focus

In his first term, Trump focused on weakening the dollar and measuring policy success by the performance of the S&P 500.

The current Trump administration is more focused on lowering the 10-year bond yield. Little or no reference has been made to the stock market’s performance.

Reducing government spending and strategically increasing U.S. oil and gas production are key to Trump’s economic policies. The Trump administration believes these policies will spur economic growth, ease inflationary pressures, and lower borrowing costs for both the government and American families.

10-year Treasuries are a benchmark for 30-year mortgage rates along with other key borrowing rates. 

The yield, or annual return, on the 10-year finally declined in February—but maybe not for the reason that Trump wants. The decline may reflect growth concerns in the economy.

Any perception that the Trump administration is losing control of the long end of the yield curve is a significant risk to their narrative.

The Trump administration is laser-focused on not letting the 10-year yield go higher from here.

S&P 500 Key Levels

The S&P 500 opens today in positive gamma. Last week, the gamma flip zone moved down to 5953, call resistance moved to 6050, and put support to 5860.

Ideally, bulls need to break through the 5980 level today. If they can do that, the S&P 500 should have further upward momentum.

The 5980 level is a key level. Many shorts are in play at this level, and they will be defended.   

If bulls fail to break the 5980 level, expect choppy price action and a move lower.

ISM Manufacturing PMI and ISM Services Reports this week (today and Wednesday) and Non-Farm Payroll on Friday will likely add to volatility.