SPX is at risk of further correction due to revised rate expectations

The S&P 500 Index (SPX) ended January on a positive note despite a significant selloff in the final week. The decline was driven by the January 30 announcement of Kevin Warsh as the future Federal Reserve (Fed) Chair. Traders perceived this appointment as a shift toward less dovish monetary conditions than had been anticipated. Powell’s successor does not preclude rate cuts, though his past statements over the years have favored a radical reduction in the Fed's balance sheet. Thus, an aggressive easing cycle is probably off the list. This immediately supported the US dollar and triggered profit-taking in the stock market.

The Producer Price Index (PPI) reading came in above forecasts, confirming that the central bank is likely to be more cautious, with no fast and drastic changes in view. Traders now expect only two rate cuts this year, and the first one is not anticipated before June, forcing investors to recalibrate their outlook. This revision deprives the market of one of its key pillars in recent months.

The technical picture is far from being bullish. Momentum indicators confirm a corrective phase. A bearish crossover of Stochastic lines near overbought territory, in tandem with the Chaikin Oscillator’s decline—both signal that buyer activity has stalled. Reduced trading volumes and the Stochastic reversal increase the chances of further downside. The S&P 500 has recently retreated from its peak level above $7,000 to the current one at $6,939, which appears to be susceptible to negative fundamentals.

The coming week promises to be extremely volatile due to numerous reports: more than 100 companies from SPX, including giants like Alphabet, Amazon, and Disney, will present their results. Following Microsoft's 10% decline on disappointing cloud service data, the market has grown hypersensitive to any signs of slowing earnings growth.

Pay attention to the following trading plan:

Sell SPX at current levels, with Take profit at $6,780 and Stop loss at $6,960.

This forecast is valid from February 2 till February 9, 2026.