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. Tomorrow, we conclude the week with the US PPI report
