Markets took a proper hit on Friday, and we could see futures gap lower on Monday, barring a surprise de-escalation in the Iran conflict. As a result of last week’s drop, the Nasdaq 100 has now tipped into correction territory, down more than 10% from its most recent peak. A lot of the unease is tied to the ongoing tensions in the Middle East. With the situation showing little sign of easing, investors are starting to price in a more worrying scenario: persistently higher oil prices feeding through into inflation and, ultimately, weighing on global growth. That concern was reflected in energy markets, where crude oil pushing above $100. As Iran’s move to turn tankers away from the Strait of Hormuz adding fuel to the fire. As a result, inflation expectations are pushing higher, which in turn makes it harder to argue for near-term rate cuts from the Federal Reserve or any other major central banks around the world. Unsurprisingly, global bond yields have been edging higher.
It is all about crude oil and Middle East tensions
Yes, we do have lots of data from the US this coming week, culminating with the release of non-farm payrolls report on Friday, but none of that matters right now as all the focus remains on the Middle East. Worrying for stock market bulls, Donald Trump appears to be losing his grip on market sentiment. Investors are no longer taking his statements at face value. If anything, markets ignoring his comments. Towards the end of last week, Trump suggested he was easing plans to strike Iran’s energy infrastructure. However, the market response was far more muted compared to Monday’s sharp sell-off in oil and equities, when he first floated the idea of a ceasefire. This suggests markets are becoming increasingly numb to Trump’s rhetoric. His credibility is at stake, especially when you consider Isreal continuing to strike Iran despite the extension of the US ceasefire announcement. Iran, meanwhile, appears willing to use higher oil prices as leverage in negotiations. If tensions escalate further, we’re likely looking at significantly higher oil prices in the coming days.
S&P 500 technical analysis
The S&P 500 continues to form lower highs, maintaining its downward trend. This increases the risk of a deeper correction. Several key support levels have already given way. One of the most important levels was the November low, at 6507. This level was tested multiple times last week before breaking below it on Monday. Despite a brief recovery following Trump’s comments on Monday, the market sold off again and this time broken below that level more decisively on Thursday, before the selling accelerated on Friday.
In the week ahead, we will have lots of broken levels to keep an eye on where we could see the selling pressure resume on the back of any further jawboning from Trump. The first level of resistance is now last Monday’s low at 6434. Above that, Thursday’s low at 6470 is next, before the focus turns to the low from November. Additional resistance is seen around 6567. Any more north of that, particularly if we get a higher high above the most recent local high of 6636, would tip the balance back in the bulls’ favour.
But what if the selling continuing? Well, liquidity below last week’s lo at 6345 is the first downside objective, followed by round handles such as 6,300 and then 6,200. Below these, the old all-time high from February 2025 comes in at 6148 with the 38.2% Fibonacci level, at 6168, coming in shortly below that. These are the next obvious downside objectives, should the selling pressure continue.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
