S&P 500 reclaims 4700 as lack of fresh hawkish surprises from Powell spurs renewed dip demand

• The S&P 500 has reclaimed 4700 on Tuesday amid broad US equity market upside as tech recovers post-Powell remarks.
• That means the index has recovered more than 2.8% from Monday’s sub-4600 lows.
• The lack of any fresh hawkish surprises seemed to give the green light for a technical reversal of recent moves.

Having managed to convincingly clear its 21-day moving average to the upside, the S&P 500 continues to march higher as the end of Tuesday’s session draws closer and has recently crept back above the 4700 level. That means the index is trading with a gain of about 0.8% on the day and is up more than 2.8% versus Monday’s sub-4600 lows. The upside in US equities, which has been disproportionately concentrated in the recently heavily hit tech sector, was spurred in tandem with a reversal lower in US real and nominal bond yields after remarks from Fed Chair Jerome Powell. Speaking at a hearing with the Senate Banking Committee for his renomination as Fed Chair, Powell stuck to the script and reiterated the main takeaways from last week’s hawkish Fed minutes.

Traders were seemingly enthused by the lack of surprises/any fresh hawkish rhetoric to spur further hawkish Fed bets, hence the tech-led reversal higher in equities and lower in yields. Recall that long-term nominal and real yields had, prior to Tuesday, seen a massive rally since the start of 2021 that had hit long-term interest-sensitive equity sectors such as tech hard. On Monday, JP Morgan’s chief global markets strategist Marko Kolanovic had said that the recent pull-back in risk assets such as US tech was “arguably overdone” and that it presented investors with a buying opportunity. Market participants agreed on Monday, powering the Nasdaq 100 nearly 3.0% higher from intra-day lows under 15,200 to above the 15,600 mark, and the rebound has continued on Tuesday, with the index now above 15,800, up a further 1.3%.

Amid a surge in crude oil prices that has seen WTI rally more than $3.0 intraday to above $81.00 per barrel, the energy sector is up more than 3.0% on the day. Most other sectors in US equity markets are also trading in the green, even financials despite the pullback in US yields (10-year -3.5bps to under 1.75%). The only S&P 500 GICS sectors in the red on Tuesday are the more defensive ones; consumer staples (-0.5%), utilities (-1.0%) and real estate (-0.25%). Amid the broad positive performance across US equity sectors, the Dow is up slightly more than 0.5% on the day to the 36,250 area. Ahead, Fed speak will remain a prominent market driver this week, as will US data, most notable of which is Wednesday’s December Consumer Price Inflation report and Friday’s Retail Sales report. Friday also marks the unofficial start to earnings season with big US banks reporting Q4 results.