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Futures on US stock indices sank significantly as traders began to lock in profits at the start of the week before the Fed's meeting and earnings reports of big tech companies. The Stoxx Europe 600 index fell as well. The downward movement amounted to 0.6%, which partially limited one of the strongest January rallies on record. The unexpected contraction of the German economy in the fourth quarter of last year dampened market sentiment.
Futures contracts for the S&P 500 and Nasdaq 100 declined by 0.6% and 0.8%, completely losing all Friday's gains. Back then, stocks advanced even against the background of disappointing forecasts of some of the world's largest tech companies. However, after having analyzed the situation over the weekend, investors became more cautious before the Fed meeting. European government bonds dropped. However, the yields on German benchmark notes rose by six basis points after data showed that inflation in Spain unexpectedly accelerated and the German economy contracted.
The Fed is expected to raise the interest rate by 25 basis points on Wednesday, undertaking a less aggressive rate hike for the second time in a row. However, stocks are unable to soar due to uncertainty. If the Fed does not make a dovish move despite the risks of a deep recession, the pressure on stock indices will escalate. Although investors need to be more alert now, the chances of further growth are rather high.
Indian stocks showed the worst performance as a plunge in Adani Group shares led to losses of $71 billion. The Shanghai Shenzhen CSI 300 index sank from intraday highs. It failed to approach the highs after the exchanges resumed their work after a week-long Lunar New Year holiday.
The headline PCE Price Index unveiled last Friday slid in December. The figure was in line with economists' forecasts. The University of Michigan Consumer Sentiment Index also showed that inflation expectations in the US continued to decline in late January, which boosted consumer sentiment.
Oil prices fell as traders analyzed demand from China. They are also worried about a surge in geopolitical tensions in the Middle East amid news that Israel had launched a drone strike on the military factory in Iran.
As for the technical outlook of the S&P 500, despite the correction, bulls are in control. The index may grow higher but bulls need to protect the support level of $4,010. The main aim now is to boost the price above $4,038. Only after that, a steadier rise may take place. The index could approach $4,064. The next target level is located at $4,091. It will be quite difficult for the index to consolidate above this level. In case of a downward movement and a lack of support level at $4,010, buyers will have to defend $3,980 and $3,960. If the index declines below, it may hit $3,923.
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