S&P 500 index needs to hold this key level while Morgan Stanley models interest rates to rise

Katie Stockton, Fairlead Strategies founder and managing partner, said on CNBC’s “Squawk Box” segment Wednesday morning we are seeing a sharp pickup in volatility as the Volatility Index jumps above its 200-day moving average. 

But on a more day-to-day basis, the S&P 500 index has swung on average more than 80 points during a daily session and this is “more characteristic of a bear market cycle,” Stockton said.

S&P 500 outlook is to the downside

Stockton said recent volatility is “very unsettling” and it is evident the market is trending to the downside after the S&P 500 index now trading below the 3,900 level. The next major support level for the index is 3,505 that represents last October’s lows. Stockton added:

That to us is what frames downside risk here and we are expecting more of the same in terms of volatility.

Fed needs to ‘stay the course’

Separately, Morgan Stanley Wealth Management Chief Investment Officer Lisa Shalett said on Bloomberg TV central banks are “late to the party” in addressing spiraling inflation. Despite what seems like a financial sector and major global equity markets trading sharply in the red on Wednesday, she said central bank credibility must be preserved by making it clear their “goal is to fight inflation.”

Not doing so has much longer-term structural damage to the economy in terms of inflation risk premiums, overall policy term premiums and turns into higher for longer rates over long periods of time. But not all market experts agree. Invezz reported on March 14 how some experts are modeling the Fed will move in the other direction and lower interest rates.

The Fed has to “stay the course” and to do anything else at this time “would really be a misstep,” she concluded.

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