- S&P 500 forecast remains bullish despite recent profit-taking
- Earnings season will be the key test for valuations
- Technical backdrop supports dip-buying, with momentum stretched
The S&P 500 edged lower in early parts of today’s session, following the softer tone across European markets. With no fresh catalysts in play, investors have evidently opted to take profits after the index touched repeated all-time highs, most recently on Tuesday. While the pause has sparked talk that the rally could be tiring, it still looks premature to call an end to what has been an impressive bullish trend. Dip-buyers have been consistent throughout the year, and that pattern could well repeat again. The S&P 500 forecast will only turn bearish when there is a clear shift in momentum.
Cooling ahead of earnings
The absence of new drivers has allowed the market to consolidate. Jerome Powell reminded investors that there are “no risk-free paths” for rates, despite the Fed signalling two more cuts this year. Even so, demand for technology stocks remains strong, particularly in semiconductors, and this continues to fuel broader risk appetite.
Valuation concerns are never far away, but the real test will come when companies start reporting next month. Until then, it is essentially a wait-and-see market. Today’s jobless claims and housing data could trigger some movements but only if we see major surprises. Core PCE is this week’s main data release, due on Friday.
Can valuations support the S&P 500 forecast?
The S&P 500 forecast has largely been supported by AI optimism and the consistent strength of mega-cap tech earnings. Outside this sector, however, the story is less convincing.
A recent Bloomberg study showed that S&P 500 companies excluding technology have risen 13% over the past year, but their profits only grew 6.4%. In the materials sector, the gap was even starker—shares are up 9% year-to-date, even as earnings dropped 13%.
This divergence highlights the market’s reliance on tech. Should those names falter, the wider index could struggle to justify its rally. That makes the upcoming earnings season vital in determining whether current valuations are sustainable.
Technical levels to watch on S&P
From a technical perspective, the market has eased from overbought conditions but continues to trend higher. The daily RSI briefly topped 70 before cooling, though on longer-term charts momentum remains elevated. That suggests strength rather than weakness, making shorts a difficult case until key supports are broken.
On our US SP 500 chart, which is derived from the underlying S&P 500 futures, traders, 6625 is the first pivot level, marking the post-FOMC high. This level was being tested at the time of writing, and we were trading slightly below it, testing a bullish trend line. A closing break lower would put 6500 in focus, with interim support likely to be provided by still-rising 21-day EMA. On the upside, initial resistance now comes in at 6756. Clearing this level opens the path to fresh highs, with round-number resistance at 6700, 6800 and 6900 etc., likely to be the next bullish targets.
In summary, then, the S&P 500 forecast remains broadly bullish despite the recent pause. Profit-taking has cooled momentum, but the dip-buying mentality still dominates. With earnings season around the corner, investors will soon discover whether corporate results can justify stretched valuations, or whether the rally has been running too far, too fast.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
