S&P500 Forecast: SPX falls from record highs ahead of Fed minutes

US futures        

Dow futures -0.85%, S&P 500 futures -0.4%  & Nasdaq futures  -0.73%

European futures

FTSE -0.54%,  DAX  -1.2%

• US stocks are falling after record highs in the Nasdaq and the S&P 500 yesterday
• Oil prices and Treasury yields are rising ahead of the S&P 500
•   Optimism surrounding Q3 earnings offers support
• Oil rises with Brent back above $100 the barrel on Middle East supply worries

U.S. Stocks Reach Record Highs as Yields and Oil Prices Rise

U.S. stocks point to a weaker open after reaching record highs in the previous session. Rising oil prices and elevated Treasury yields are making investors more cautious as they look ahead to the minutes from the September FOMC meeting.

The S&P 500 and Nasdaq rose to record highs on Tuesday as AI optimism boosted tech stocks, while investors positioned for a strong Q3 earnings season. This is in stark contrast to the Dow Jones, which remains around 5% below its August 5 record high.

Sentiment is more cautious today, with Brent rising back above $100 a barrel on Middle East supply concerns, reviving inflation worries.

Treasury yields have also pushed to fresh multi-decade highs. The 30-year Treasury yield has risen to 5.72%, its highest level since 2002, while the 10-year yield is around 5.33%, also close to multi-decade highs.

Attention is turning to the FOMC minutes due later today. The Fed raised rates by 25 basis points at its September meeting, with policymakers pointing to the possibility of another hike before year-end. Markets are no longer expecting an October hike following Friday’s softer-than-expected nonfarm payroll report, although a 25-basis-point hike remains largely priced in before the end of the year.

While higher rates are unlikely to slow the build-out of AI infrastructure significantly, tighter monetary policy is likely to weigh more heavily on traditional sectors through higher borrowing costs, helping explain the divergence between the Dow and the S&P 500.

Looking ahead to earnings season, S&P 500 earnings growth of 30.6% is expected for Q3, led by an estimated 114% jump in energy earnings, followed by a 66% increase in technology earnings. While 30% profit growth is strong, it would still be below Q2, when S&P 500 companies posted a 54% increase in earnings.

Still, investors will be looking for a broadly positive earnings season to provide the fundamental support needed to sustain record stock-market valuations.

Corporate Movers

Alphabet is around 2% higher after unveiling its most advanced AI model yet, Gemini for Argon, with improvements in cybersecurity coding and complex professional work.

Accenture has jumped 17% after fiscal Q4 results showed revenue of $18.68 billion, ahead of the company’s guidance range of $17.75 billion-$18.4 billion.

Micron, the memory-chip maker, reported better-than-expected Q4 results. The stock fell slightly despite a solid revenue outlook, although other semiconductor names moved higher.

S&P 500 Forecast – Technical Analysis

The S&P 500 broke out of its triangle pattern to reach a record high of 7,840 before easing back to around 7,790, below the previous record high of 7,810.

With buyers supported by an RSI above 50, a sustained break above 7,810 and 7,840 would bring 7,900 into focus, followed by the psychological 8,000 level.

Support on the downside is seen at 7,760, followed by trendline support around 7,700. A break below 7,620, the June high and October low, could see selling pressure gain traction towards 7,500, the September low.

FX Markets – Dollar Holds Near 18-Month High

The U.S. dollar is rising, tracking Treasury yields higher as investors await the Fed meeting minutes. The dollar is recovering from a 0.27% decline yesterday, supported by safe-haven flows as Middle East supply concerns push Brent back above $100 a barrel.

EUR/USD is falling towards a 17-month low below 1.12 amid a stronger U.S. dollar. French bonds remain under pressure amid political uncertainty ahead of the 2027 election, raising concerns over the country's ability to repair its finances. Markets are pricing around 75 basis points of ECB rate hikes by the end of next year, compared with around 85 basis points of Fed hikes.

GBP/USD is falling amid a resurgent U.S. dollar, although the downside could be limited as rising oil prices add to inflation concerns and reinforce expectations that the Bank of England could hike rates at its next meeting. BoE policymaker Catherine Mann said inflation above the bank's 2% target appears embedded in the economy and warned it could reach 4% around the turn of the year, when wage negotiations typically take place.

Oil Prices Rise as Supply Concerns Return

Oil prices are rising on Wednesday, recovering from a monthly low as supply concerns return. A storm forming in the Gulf of Mexico could disrupt U.S. oil and gas production, while Iran-backed Houthi attacks on Saudi Arabia add to Middle East risks. U.S. crude inventories also fell by 2.09 million barrels last week, according to API data.

Meanwhile, Middle Eastern supply is recovering, with Saudi Arabia's East-West pipeline reaching 5.8 million barrels per day. However, ongoing regional tensions and stalled U.S.-Iran relations continue to cloud the outlook. Without meaningful de-escalation, oil could remain around $100 a barrel, particularly as accessible inventories remain low.

Governments and energy companies have drawn down stockpiles to ease supply pressures, while Saudi Aramco has warned that less than 6 billion barrels of commercial inventories remain, with much of it not practically available. The IEA is preparing a 100 million-barrel crude and diesel release, but rebuilding inventories could take years.

The key cross-asset risk is that oil above $100 keeps inflation expectations and Treasury yields elevated, limiting the support that falling Fed-hike expectations would otherwise provide to equities.