The “Fed put” is often portrayed as the level in the S&P 500 index, where the Federal Reserve takes action to begin supporting the equity markets by rate cuts, and QE.
BofA fund managers survey recently said 3750 is likely to be where the FED steps in, in help of the markets.
Tyler Durden from ZeroHedge has a different view of the “FED put” level. He says it’s at 3217.
His calculations are a function of the Fibonacci retracement levels from the March 2020 closing lows.
The 3217 level is an interesting calculation, as the S&P 500 was at those levels before the market crash of March 2020. Thus a retracement back to that level, would mean all of the gains made since before the crash, are erased.
If we hit that level in the S&P 500, that’s where the FED could step in with rate cuts and QE.
Will the FED do that?
Michael Lebowitz thinks that’s an “incredibly tough task”, because the FED wants to get inflation under control, without killing off its stock market, and thus maintaining financial stability.
This means that raising interest rates won’t be such an easy task. Raising interest rates, though having the ability to somewhat slow down inflation, could also result in financial instability, which is FED enemy #1.
Falling to 3217 would take about a 26% drop from the levels of Tuesday, February 22, 2022. Sounds like a sharp and unlikely drop, but once margin calls start coming in, after a 20% drop, it could go quickly, pushing the S&P 500 below 3000, which would paint a very grim economic picture, coupled with massive layoffs, especially among the cash-hungry tech giants who only exist in an economy of free money.
In that case, we will be confronted with extreme financially instability and moving the rates likely won’t do much.
Meaning, the FED can’t have that happen, and will likely start paying very close attention to the securities markets if we come close to 3500, which is 20% down from today’s levels.
Please read this, and the full disclaimer over here, it really is important and for your own good:
This article should not be considered investment advice of any sort. No trading recommendations are being made in this article. Be diligent and do your own research before risking your capital. The investment decisions of the author are based on their own investor profile. This includes, but is not limited to, their risk profile, their cash balance and their debts. The author likely has a higher risk appetite than yourself. This article is impersonal in nature and will not take any specific person’s situation in mind. The author of this article is not engaged in the business of providing financial nor investment advice. That’s why you may never assume anything on this website to be personally tailored to your situation. Resource Talks, nor the Author of this article are a registered advisory service and we do not give investment advice. Our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time.
Am I wrong? Is my beard ugly? Did I miss something? Great! We’re all here to learn. If you caught a mistake in this article, please start a conversation down below by correcting me and providing further literature for me and future readers to benefit from. Thanks!