The S&P 500 (SPX) opened lower Wednesday and sputtered into the close, states Jon Markman, editor of Strategic Advantage.

The benchmark index finished at 4,115, a loss of 1.1%.

Other than rising interest rates and surging energy prices, there was not any significant news. The selloff Tuesday reversed the gains of the previous session. That’s it. For the week the index is essentially unchanged.

More importantly, the COBE Volatility Index (VIX) continues to decline. The VIX is a key measure of investor fear. Either traders are whistling past the graveyard, ignoring key macroeconomic developments, or the other shoe is about to drop and the real panic will begin later. It is hard to tell at this point, though I lean toward the latter.

My bias has been to look for bears to ultimately concede a rally to the 50-day moving average for the S&P 500. That level is important overhead resistance, and now at 4,225. Gotta be flexible, though. If the benchmark index loses critical support at 4,080 and closes near the day’s low, it is a sign that bears are ready to reassert themselves. I would then expect a watershed decline to test the May low at 3,810.

SA TradeView: Our ProShares UltraShort S&P 500 (SDS) position gained 2.2% Wednesday to $43.48. Target remains $45.30; stop is $42.00.

The Upshot

The Dow (DJI) fell by 0.8% to 32,910.90 and the Nasdaq (NDX) sank 0.7% to 12,086.27, wiping out gains from earlier in the session. Only the energy sector posted gains while real estate was the steepest decliner. This level of correlation is disturbing as it shows the market is reacting more to macro forces and not the earnings prospects for individual sectors and companies.

The US ten-year yield climbed seven basis points to 3.04%. Remember that yields over the 3% level are the most dangerous for equities. Crude oil futures jumped $3.02 to $122.43 per barrel.

Breadth favored decliners two-one, and there were 186 new highs vs 122 new lows, which is nice. Big caps on the new high list included Exxon Mobil (XOM), Chevron (CVX), TotalEnergies (TTE), ConocoPhillips (COP), and BP (BP).

The OECD slashed its 2022 global growth projection to 3% from 4.5% set out previously. It expects growth will slow further to 2.8% in 2023. The group boosted its average inflation forecast for OECD countries to 8.5% this year and 6% in 2023 versus 5% and 3% prior estimates, respectively.

Wholesale inventories rose by 2.2% in April, revised slightly higher from a 2.1% increase in the advance reading and following a 2.7% gain in March. Analysts in a survey compiled by Bloomberg expected April inventories to be unrevised.

Testifying in front of the Senate Finance Committee, US Treasury Secretary Janet Yellen said the current 8% inflation annual rate is "unacceptable." Thanks for the insight, Janet.

In company news, Altria Group (MO) shares sank 8.4%, the steepest decliner on the S&P 500, after Morgan Stanley downgraded the cigarette company's rating to underweight from equal weight and lowered the price target to $50 from $54. Shares of Intel (INTC) slumped 5.3%, among the worst performers on the S&P 500 and the Dow, and the steepest decliner on the Nasdaq 100, as Citi said its bear-case scenario was "taking shape even earlier" than expected, according to Barron's.

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