S&P 500 Forecast: SPX Navigates Another False Start Toward Peace in Iran

Iran, S&P 500 Crude Oil Key Points

• Traders are still giving US-Iran negotiators the benefit of the doubt, chalking today’s dueling headlines up to public posturing.
• If we approach the weekend with no clear signs of progress toward peace, traders could once again sour on the prospects for a near-term peace agreement and sell risk assets
• The S&P 500’s new high was not confirmed by the 14-day RSI, creating a bearish momentum divergence that suggests buying momentum is fading.

It’s been another topsy-turvy day of developments along the path toward peace between the US and Iran.

Shortly after US markets opened, Iranian state TV claimed it had obtained a draft unofficial framework for a memorandum of understanding. The reported outline called for U.S. forces to pull back from areas near Iran and lift a naval blockade, while Iran would restore commercial shipping through the Strait of Hormuz to pre-war levels within a month. It also suggested Iran and Oman would manage Hormuz traffic and that any final deal reached within 60 days could be formalized through a binding UN Security Council resolution.

Just an hour later, the White House rejected the Iranian state-media report as fabricated, undercutting earlier market optimism.

Source: Twitter

As we rolled into midday, President Trump told PBS that Iran would not receive sanctions relief in exchange for giving up highly enriched uranium, signaling Washington is resisting a simple quid pro quo. He reiterated that message in his Cabinet meeting, proclaiming that Iran is “negotiating on fumes” and that he was “not satisfied” with the current agreement with Iran.

As it stands, markets are still giving negotiators the benefit of the doubt, chalking today’s dueling headlines up to public posturing, but every day that the Strait of Hormuz remains functionally closed, the economic costs for the world economy extend. Yesterday, US Secretary of State Marco Rubio proclaimed that the two sides would need “a few more days” to iron out the details of a deal, so traders are likely to hold their resolve for now, but if we approach the weekend with no clear signs of progress, traders could once again sour on the prospects for a near-term peace agreement and sell risk assets.

S&P 500 Technical Analysis: SPX Daily Chart

Source: Tradingview, StoneX

When you’re talking about risk assets, one of the purest expressions of risk appetite is the S&P 500. The broad US index set a fresh record high near 7550 over the Memorial Day holiday weekend and has spent the middle of the week consolidating near that level.

Interestingly, the marginal new high was not confirmed by the 14-day RSI, creating a bearish momentum divergence that suggests buying momentum is fading. Of course, a negotiating breakthrough could instantly invalidate that pattern and take stocks to record highs, but if all we see is continued false starts between the US and Iran heading into the weekend, the index could roll over and shift the focus to near-term support in the 7330 area.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX