FUNDAMENTAL OVERVIEW
The S&P 500 rebounded from the monthly lows as risk sentiment improved. There was no real catalyst for the move as the market continues to trade in a range amid uncertainty on the macro and geopolitical fronts.
The short-term uncertainty caused by the US Supreme Court ruling on tariffs might have weighed on the market, but in the bigger picture it didn’t change much as Trump quickly reimposed new tariffs using different laws. The new levies reduce the effective average tariff rate, which could be a positive at the margin.
In terms of Fed interest rates path, the market is still pricing 54 bps of easing by year-end which could be at risk of a hawkish repricing on further improvement in the US labour market data. In fact, Fed’s Waller mentioned that he might want to hold rates steady if we see a repeat of the strong January’s NFP report. Therefore, next Friday is going to be key as good data could weigh on the market in the short-term on a hawkish repricing.
Lastly, we have the US-Iran military escalation risk. This is one of the biggest risks because if a military conflict were to break out, we would see oil prices skyrocket. This would be a negative shock for the global economy and lead to stagflation risks. The first reaction in the markets would be strong risk aversion. We would highly likely see a selloff in the stock market as future growth expectations would turn negative.
To sum up, there are lots of downside risks at the moment with little reasons for a rally into new all-time highs. Nonetheless, the macro backdrop remains positive given the easing inflation and improving labour market, but that could change quickly, so traders will need to be careful.
S&P 500 TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that the S&P 500 rebounded from the monthly lows and it’s approaching the all-time highs. If the price gets there, we can expect the sellers to step in with a defined risk above the record highs, to position for a drop back into the 6,760 support. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into new record highs.
S&P 500 TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we have a strong support zone around the 6,930 level. If we get a pullback, we can expect the buyers to step in around the support with a defined risk below it to keep pushing into new highs. The sellers, on the other hand, will look for a break lower to pile back in and target the 6,760 support.
S&P 500 TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here as the buyers will have a better risk to reward setup around the support, while the sellers will need a break lower to open the door for a drop into the 6,760 support. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we have the third round of US-Iran talks and the US Jobless Claims data. Tomorrow, we conclude the week with the US PPI report.
