Global equities pushed higher through the first half of Thursday’s session, while US futures suggested a flat start for the S&P 500. The benchmark has advanced in seven of the past eight sessions, yet the rally now appears to be losing a touch of energy. With traders increasingly wary of overstretched valuations in AI and big-tech names, the key question hanging over markets is whether a potential Federal Reserve rate cut next week can trigger a so-called Santa rally. For now, the S&P 500 forecast remains cautiously constructive, albeit with more hesitancy creeping in.
Why have stocks been climbing?
Expectations of interest-rate cuts have been the primary tailwind. After November’s wobble, markets have regained their footing as investors rotate towards more defensive sectors, perhaps in recognition that some tech favourites have run a bit too hot. Softer sentiment in the US jobs market — combined with speculation that President Donald Trump may opt for a more dovish-leaning Fed chair — has nudged market pricing towards as many as four rate cuts by 2026.
Markets tend to relish the prospect of lower rates, and that optimism has so far offset wider concerns over weakening labour conditions and the uncomfortable reality that more firms are steadily replacing human roles with AI-driven efficiencies. For now, the S&P 500 forecast is being buoyed by rate-cut expectations rather than economic strength.
What are the risks on the radar?
If you strip away hopes of lower interest rates and stable inflation, supportive catalysts look rather thin. Market concentration remains a lingering worry, with the rally heavily dependent on a small cluster of mega-cap tech names — precisely the environment in which bubble chatter tends to grow.
Another potential risk comes from Japan, where rising bond yields have so far been shrugged off thanks to solid demand at recent auctions. But should global investors begin shifting out of equities and into bonds — particularly if concerns over the reverse carry trade resurface — the knock-on effects could drag on both US and global markets.
Add to that the broader recession risk hanging over corporate earnings. Up to now, none of these concerns has meaningfully derailed sentiment. But complacency is dangerous, and one has to ask whether this calm can really persist. It’s a theme increasingly feeding into traders’ S&P 500 forecast discussions.
Technical S&P 500 forecast and levels to watch
After last week’s sharp rebound, the S&P 500 has made limited progress so far this week. Even so, the structure retains a mildly bullish slant, largely because price action continues to hold above last week’s highs. At the time of writing, the market still looked constructive — just not energised. Several previously broken levels have now been reclaimed, reinforcing the impression that the bulls maintain a degree of control.
That said, without a meaningful catalyst, it is difficult to feel entirely confident that the index can genuinely extend from here. Sellers have effectively been sidelined in recent sessions, but a shift back towards bearish sentiment would require a clear reversal signal. For me, that would mean a decisive break below support at 6766–6780 — the blue-shaded zone on our UA AP 500 chart, which is derived from the underlying S&P 500 futures. A breach there could see the index sliding towards 6715 initially, with 6573, an intraday level, some distance below it. Beneath that, the range lows at 6500–6532 would come back into play as the next downside target.
Meanwhile on the upside there has been a bit of a supply band between 6829 to 6877 that the market has struggled to rise above in recent days. The bulls have been chipping away at it and yesterday managed a close within that zone, potentially eroding resistance. This is the same region from which sellers stepped in back in mid-November. If the bears are to regain the upper hand here again, this is the area they must defend. A clean break above 6877, however, opens the door to fresh all-time highs beyond the October peak at 6922. And should momentum carry through, a run towards 7000 — the next major psychological hurdle — feels entirely plausible.
In short: the technical bias still leans bullish, but momentum is lacking, leaving risks balanced on both sides. I’d like to see a decisive breakout above resistance or a proper breakdown below support before taking a firmer stance. For now, the market sits in something of a no-man’s-land, and from a purely technical perspective, the S&P 500 forecast remains neutral until the next clear trigger emerges.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
