S&P 500 pares bulk of intra-day losses but 4400 continues to provide ceiling

• US equities were mixed on Thursday and defined more by rotation from growth into value than risk-on or risk-off.
• The S&P 500 recovered most of an intra-day drop of nearly 1.0%, but remains capped under 4400.

US equity market trade has been more defined by rotation from high multiple tech and growth names into more defensive stocks and value names on Thursday as opposed to any broad risk-on/risk-off trend. With not much having changed on the Ukraine/Russia war front (i.e. no signs of de-escalation) and remarks from Fed Chair Jerome Powell in line with his remarks a day earlier, a near-flat trading S&P 500 shouldn’t be too surprising. The index dipped as low as the 4340s where it was at the time about 1.0% lower on the day in earlier trade, but has since recovered to the 4375 area, where it trades with modest losses of about 0.3%. The 4400 level continues to provide strong resistance. 

The Nasdaq 100 was last down about 1.2% and trading back just above 14,000 having been as high as the 14,300s earlier in the day, with the index seemingly coming under selling pressure as it tested its 21-Day Moving Average. The Dow, meanwhile, was last flat and trading just under the 33,900 mark, close to the middle of its intra-day 33,650-34,180ish range. The CBOE S&P 500 Volatility Index dropped just under a point to slightly under 30.00 again, still well above its long-term average which is close to 20.00.

Investors face a wall of worries on multiple fronts. Commodity prices were all over the place on Thursday, with WTI swinging as high as the $116.00s (multi-year highs) before dropping back under $110 amid continued feverish speculation as to the impact of Russia sanctions. The take of Fed policymakers, including Powell, who spoke on Thursday at the second of his two-day semi-annual testimony before Congress, is that events are likely to worsen the inflation problem. And that could mean a faster pace of rate hikes (i.e. 50bps intervals) later this year if inflation fails to subside as expected.

That could be one reason why interest rate-sensitive growth/tech names are underperforming on Thursday, although with US bond markets broadly flat on the day, that might be reading too much into things. Thursday also saw the release of the widely followed ISM Services PMI survey for February which underwhelmed and was at its weakest in a year. But with equity investors much more focused on geopolitics and the Fed’s reaction right now, perhaps it wasn’t too surprising not to see a reaction. As long as the upcoming jobs report doesn’t surprise in a big way to the up or downside, that may well be the case on Friday also.