S&P 500 Forecast: SPX falls on tech rout, Fed rate hike expectations

US futures                                          

Dow futures -0.50%, S&P futures -1.4%  & Nasdaq futures 3%

In Europe                                                                        

FTSE -0.4% & DAX -1%

• U.S futures fall after losses yesterday
• Global tech rout continues amid AI concerns, Fed rate hike expectations
• Space X is set for a fourt straight day of losses
• Oil steady as flows through the Strait ease supply concerns

U.S. Futures Point Lower as AI Trade Faces Fresh Reality Check

U.S. futures are pointing to a weaker start following a steep sell-off yesterday as concerns grow that the AI trade may have run too far, too fast.

The AI-driven bull market of 2025 and 2026 has seen an enormous concentration of institutional capital flow into a relatively small group of semiconductor designers, hyperscale cloud providers, memory chip makers and AI infrastructure companies. After such a powerful rally, investors are beginning to question whether earnings growth can continue to justify increasingly stretched valuations.

Attention is now turning to what comes next. The key question is whether this is healthy profit-taking within a longer-term AI bull market or the start of a deeper correction as investors reassess the timeline for AI monetisation.

Much could depend on whether fresh catalysts emerge, such as additional capex commitments from hyperscalers or clearer evidence that AI investments are generating meaningful returns. With this in mind, attention will be on Micron, which reports earnings after Wednesday's close and whose shares have rallied 300% this year.

Adding to the pressure on technology and other high-growth stocks are rising expectations that the Federal Reserve could hike interest rates this year. Higher rates reduce the present value of future earnings, making richly valued AI and growth stocks particularly vulnerable to any further repricing in rate expectations.

This comes ahead of tomorrow's Core PCE data, the Federal Reserve's preferred gauge for inflation, which could provide further clues over the outlook for interest rates following last week's hawkish FOMC meeting.

A stronger-than-expected inflation reading could reinforce expectations for a Fed rate hike and add further pressure to both technology stocks and other risk assets. Conversely, a softer reading could ease concerns over policy tightening and help stabilise sentiment.

Corporate Movers

SpaceX fell 16% yesterday and is set to open lower again today, having wiped out around $600 billion in market capitalisation over the past three sessions. The sell-off followed news that the company is preparing an investment-grade bond sale to help fund its AI expansion, raising questions over the scale of spending and how quickly those investments will translate into profits.

 IBM There's a bright spot in the broader tech sell-off, rising 4% following an upgrade to overweight from J.P. Morgan.

Qualcomm, the semiconductor stock, is sliding 6% on reports that the company is in advanced talks to acquire AI software infrastructure company Modula in a deal valued at $4 billion.

Oracle is down 2% after the software giant said that it was cutting 21,000 jobs, for almost 13% of its workforce.

S&P 500 Forecast – Technical Analysis

Having recovered from the 50 SMA in early June, the price ran into resistance at 7,575, forming a lower high, and has since fallen sharply back to the 50 SMA at 7,350.

Sellers, supported by momentum, will look to break below this level to expose 7,250, the June low. A break below here creates a lower low and opens the door towards 7,200 and then the psychological 7,000 level.

Should the 50 SMA hold, buyers will need to rise above 7,480, the 20 SMA, to look towards 7,575, the June 15 high. A rise above here creates a higher high, bringing 7,620, the record high, into focus.

FX Markets – USD at yearly high, GBP/USD Falls on Weak PMI Data

The U.S. dollar has risen to a fresh yearly high as investors continue to price in a more hawkish Federal Reserve. Markets are increasingly expecting higher rates for longer, supporting Treasury yields and the greenback.

EUR/USD is falling amid broad U.S. dollar strength and as business activity in the Eurozone remained in contraction territory in June, albeit at a slightly slower pace than a month earlier. While the data point to a flatlining economy, price pressures continued to cool.

GBP/USD is under pressure after data showed that the UK services sector, the dominant part of the economy, contracted at the fastest pace in almost three and a half years, highlighting the difficult backdrop facing the next UK Prime Minister.

Services PMI fell to 48.7 in June from 49.3, well below expectations of 50.1. The 50 level separates expansion from contraction.

Oil Continues to Fall as U.S.-Iran Talks Progress

Oil prices are little changed on Tuesday as flows through the Strait of Hormuz continue to improve following progress in U.S.-Iran peace talks.

Prices fell 3% on Monday after the U.S. granted Iran a 60-day sanctions waiver and amid a reported lull in hostilities between Israel and Lebanon.

According to President Trump, 19 million barrels of oil flowed through the Strait on Monday. However, the world has lost millions of barrels of oil and gas supply since the conflict began more than three months ago, meaning it could take time for inventories and supply chains to normalise fully.

For now, the market appears to be pricing in a gradual recovery in supply. However, any setback in negotiations or disruption to shipping routes could quickly see some geopolitical risk premium return to oil prices.