The 'Powell pump' pushing the recent rally in the S&P 500 is over, and stocks may have further to fall as Fed moves and a looming recession keep investors away

• The "Powell pump has been erased," and the S&P 500 has lost gains made over the week after Fed Chair Jerome Powell spoke, a City Index analyst said.
• Hotter-than-expected data are stoking worries the Fed will keep raising rates beyond a widely anticipated 5% terminal rate.

The S&P 500 scaled higher last week when Federal Reserve Chairman Jerome Powell indicated a downshift in the size of rate hikes — but now those price gains are gone and more stock losses are likely in store, according to one analyst.

"So, the Powell pump has been erased," Fawad Razaqzada, market analyst at City Index, wrote in a Tuesday note about the index's technical levels.

The S&P 500 shot up by 3.1% to 4,080.10 last Wednesday after Powell in a speech said signs of easing inflation may result in a smaller rate hike this month. The index has since dropped by more than 2% through midday Tuesday, giving up the 4,000 level once again.

The analyst said a few hotter-than-anticipated economic reports arrived after Powell's Brookings Institution speech, hurting stocks as investors worry the data will encourage the Fed to raise interest rates above 5% before the rate-hike cycle is paused. Among the reports, the November US jobs report beat expectations with the economy adding 263,000, and activity in the services industry unexpectedly strengthened last month.

"That said, there's not much further in terms of fresh bearish macro triggers. So, it remains to be seen how much further this downward move can go, and whether the bulls will step in once again at these levels," said Razaqzada.

Stock market bears so far this week have "successfully defended" the key 4,077 resistance level, he said. "A lower low beneath 3,936 would further excite the sellers – and scare away the bulls – especially on a daily closing basis. That's because we will then also have seen the breakdown of the bull channel."

Stock market investors may have already fully priced in an anticipated rate hike of 50 basis points at the Fed's December 13-14 meeting rate hike and a reduced tightening pace thereafter, he said.

"This may therefore keep a ceiling on stock prices. Fears over a looming recession may also discourage investors from piling further into the stock markets after what has been a very impressive recovery in the last couple of months or so," said Razaqzada.

Wall Street has cautioned that the Fed's aggressive round of rate hikes this year will tip the economy into a recession. JPMorgan CEO Jamie Dimon on Tuesday also flagged the prospect of a contraction.

"Inflation is eroding everything I just said, and that $1.5 trillion will run out sometime mid-year next year," Dimon told CNBC. "So when you're looking out forward, those things may very well derail the economy, and cause this mild-to-hard recession that people are worried about."

The November inflation reading will arrive on December 13, a day before the Federal Open Market Committee releases its latest policy decision. October headline inflation was at 7.7%, easing from a four-decade high. The fed funds rate is at a range of 3.75% to 4% after six rate increases in 2022.