S&P 500 (SPY) Set For A Sell-Off After Shocking Inflation Data

Key Insights

• U.S. inflation data shocked markets. 
• S&P 500 futures are under significant pressure in premarket trading. 
• A move below 4015 will push S&P 500 towards the 4000 level. 

Inflation Data Puts Heavy Pressure On Stocks

S&P 500 futures are down by 2.4% in premarket trading after the release of U.S. inflation reports.

The reports indicated that Inflation Rate increased by 8.3% year-over-year in August, compared to analyst consensus of 8.1%. Core Inflation Rate grew by 0.6% month-over-month, while analysts expected that it would increase by just 0.3%.

Markets were shocked by inflation data as many traders believed that lower oil prices would put more pressure on inflation. Expectations for the upcoming Fed meeting changed dramatically. The FedWatch Tool indicates that there is a 90% probability of a 75 bps rate hike at the next meeting, and there is a 10% probability of a shocking 100 bps rate hike.

Not surprisingly, the U.S. dollar rallied after the release of inflation reports. Treasury yields moved to new highs. Currently, the yield of 2-year Treasuries is trying to settle above the 3.70% level.

Higher inflation and rising Treasury yields will put material pressure on tech stocks in today’s trading. Leading tech stocks like Apple, Microsoft, Alphabet, and Amazon are down by 2-3% in premarket trading.

The sell-off may be broad today as S&P 500 enjoyed a strong rally in recent trading sessions, and it remains to be seen whether any market segment will get support from traders.

S&P 500 Futures Moved Below The 50 EMA

S&P 500 futures managed to get below the 50 EMA at 4050 and are moving towards the support at 4015. In case S&P 500 manages to settle below this level, it will head towards the next support, which is located at 4000. A move below this level will push S&P 500 towards the support at 3980.

On the upside, S&P 500 needs to get back above the 50 EMA to have a chance to gain upside momentum in the near term. The next resistance level for S&P 500 is located at 4080. If S&P 500 settles back above this level, it will head towards the resistance at 4100.

For a look at all of today’s economic events, check out our economic calendar.