Stock market on January 30: S&P 500 and NASDAQ plunge

[Ben Graham]

Yesterday, stock indices closed mixed. The S&P 500 fell by 0.13%, while the Nasdaq 100 declined by 0.72%. The Dow Jones Industrial Average, however, rose by 0.11%.

Futures on US equity indices continued to slide, as did US Treasury prices, after many traders priced in the possibility that Donald Trump would nominate Kevin Warsh as the next chair of the Federal Reserve, a choice viewed as tougher than other contenders.

That prospect rattled markets because Warsh is widely perceived as more conservative on monetary policy. His likely appointment increased concern about a harder stance on interest rates, which could pressure corporate profits and economic growth. Investors who prefer easier policy reacted by selling risk assets to protect portfolios from potential economic fallout.

The market reaction reflects a belief that Warsh would be more determined to fight inflation even at the cost of a temporary slowdown in growth. His commitment to free?market principles and tight monetary policy would likely tighten financial conditions and increase market volatility.

Against this backdrop, gold fell by 2.8%, while the dollar strengthened. However, the appointment is not final until the president announces his decision. Trump said he plans to make the announcement on Friday.

KCM warned that if Warsh were nominated as the next Fed chair, markets might need to temper their expectations, adding that the official was likely to take a tougher stance than other short?listed candidates, which could dampen expectations for further rate cuts.

The anticipated Friday announcement will end months of speculation about who will lead the central bank, after Trump and his administration repeatedly criticized Fed Chair Jerome Powell for not cutting interest rates. If the nominee is a hawk like Warsh, it could add further confusion to markets. Notably, Powell's term as Fed chair expires in May.

Earlier reports said Trump was considering four candidates from his short list: Kevin Hassett (Director of the National Economic Council), Fed Governor Christopher Waller, Kevin Warsh, and Rick Reider, BlackRock's CEO.

As for the technical outlook for the S&P 500, the immediate task for buyers today is to overcome the nearest resistance level of $6,930. Breaking above that level would indicate upside and open the path to $6,946. An additional priority for bulls is to secure control above the $6,961 mark, which would strengthen buyers' positions. In case of a downside move amid falling risk appetite, buyers must assert themselves around $6,914. A break below that level could quickly push the instrument back to $6,896 and open the way to $6,883.

The material has been provided by InstaForex Company - www.instaforex.com