S&P 500 ends week close to lows as Fed/Treasury uncertainty, lockdown fears take hold

• The S&P 500 sold off in the final hour of trade and S&P 500 futures ended the week close to lows.
• Uncertainties regarding US politics and the Fed’s emergency lending facilities, coupled with further lockdown concerns weighed.

Following a choppy session, the S&P 500 sold off in the final hour of trade, ultimately ending the session 0.65% lower, though S&P 500 futures have continued to see downside after the bell and are now consolidating just above lows of the week beneath 3550.

Unhelpful uncertainties regarding Fed lending, lockdowns weigh on sentiment

The major news on the final day of the week was US Treasury Secretary Steven Mnuchin’s decision not to extend many of the Fed’s government-funded emergency lending programmes beyond 31 December, a decision which the Fed immediately and publicly expressed their disagreement with.

Mnuchin explained that the decision would bring back $455B that had been allocated to the Fed’s lending programmes to government coffers. That money could be spent immediately to fund the next stimulus bill, argued Mnuchin, who said he will work with and call on Congress to get to work on the next stimulus bill.

However, though Republicans and Democrats in Congress are now talking stimulus again, there remains a lot of skepticism as to whether they will actually be able to get anything done during the lame-duck session. The White House reportedly wants to push for a deal to better position the Republican Party in the January runoff election in Georgia, but this state election may, as the Presidential election, again serve as an incentive for both sides to make it look as though they are trying to work for a deal, whilst actually negotiating in bad faith.

In other words, the likelihood that the end of the year arrives without another stimulus package having been passed by Congress remains very high, and now the Fed’s abilities to fill the gap by at least lending directly to the real economy is hindered.

The possibility of this ugly scenario has led some to believe that Mnuchin’s decision may be one of a few “parting blows” from the outbound Trump Administration to the incoming administration; note that the Trump Admin is still also refusing to engage with President-elect Joe Biden’s transition team.

Political uncertainties appeared to weigh on sentiment on Friday, coupled with further news of more cities implementing tougher lockdown restrictions.

S&P 500 futures find sellers at 3580-3585 resistance zone

S&P 500 futures have traded with two distinct zones this week. The first half of the week was mostly spent between roughly 3580-3620. However, when sentiment took a turn for the worse on Wednesday night (triggered by a pick-up in lockdown fears as New York announced closure of schools) a new range was carved out between roughly 3540-3580. Going ahead, the boundaries of these ranges will provide key areas of support and resistance.  

S&P 500 futures one hour chart