S&P 500 Forecast: SPX falls as inflation reaches a 3-year high & Middle East tensions rise

US futures                                          

Dow futures -0.4%, S&P futures -0.5%  & Nasdaq futures -0.8%

In Europe                                                                        

FTSE -0.15% & DAX -0.36%

• U.S stocks fall further after CPI data
• US CPI rises to 4.2% YoY, Core CPI rises 0.2% MoM vs 0.3% expected
• Chip stocks extend selloff ahead of Friday’s SpaceX IPO
• Oil jumps after Trump threatens Iran

U.S. stocks fall as inflation hits a three-year high and chip sell-off continues

U.S. stocks are falling as inflation rises to a three-year high, oil prices jump amid renewed U.S.-Iran tensions, and the sell-off in semiconductor stocks continues.

U.S. inflation rose to 4.2% year-on-year in May, up from 3.8% in April and marking the highest reading in more than three years.

Looking beneath the headline figure, energy prices rose 3.9% and accounted for roughly 60% of the increase in inflation. Airfares increased 2.7%, likely reflecting both higher fuel costs and seasonal demand, while gasoline prices rose 7% month-on-month and 40.5% year-on-year.

Core CPI, which excludes food and energy, rose 2.9% year-on-year, in line with expectations. However, on a monthly basis, core inflation increased by 0.2%, below the 0.3% forecast.

The softer core reading helped Treasury yields retreat from their session highs and allowed equity futures to recover some of their earlier losses.

Following the data, markets slightly pared back expectations for additional Fed tightening. Around 16 basis points of tightening are now priced in for October, although markets continue to fully price in a 25-basis-point rate hike by December.

Investors are also monitoring developments in the Middle East after President Trump warned that Iran was taking too long to negotiate a deal and would "pay the price." His comments followed another exchange of strikes between U.S. and Iranian forces in the region.

Renewed tensions have pushed oil prices higher and risk adding further inflationary pressure at a time when central banks are still trying to bring price growth under control.

Separately, semiconductor stocks continue to sell off as investors take profits following this year's powerful AI-driven rally. The weakness may also reflect some capital rotation ahead of Friday's highly anticipated SpaceX IPO.

Corporate movers

Chipmakers remain under pressure, with Micron Technology down around 5%, AMD falling 4%, and Broadcom lower by 3%.

Super Micro Computer is dropping 12% after announcing plans to raise $7 billion through equity-related financing to fund hardware component purchases and support future growth.

Gold mining stocks are also weaker as gold prices fall to multi-month lows. Gold Fields is down 6%, while AngloGold Ashanti has declined 7%.

Nike is slipping around 2% after RBC downgraded the stock to Sector Perform from Outperform, citing a slower and narrower turnaround than previously anticipated.

S&P 500 forecast – technical analysis

The S&P 500 has pulled back from its record high of 7,620, breaking below the 20-day SMA before finding support at 7,240 near the 50-day SMA.

Although the index recovered from support, its failure to reclaim the 20-day SMA keeps the near-term bias tilted to the downside. The RSI remains below 50, supporting a cautious outlook.

Sellers will need to break below 7,230 and the 50-day SMA to expose the psychological 7,000 level. A move below this area would weaken the broader bullish structure.

On the upside, buyers need to reclaim the 20-day SMA around 7,480 to bring the record high at 7,620 back into focus.

FX markets – USD eases, EUR/USD steady

The U.S. dollar is modestly lower following the CPI report, despite risk-off moves in the equity market.

EUR/USD is holding steady ahead of Thursday's ECB rate decision, where policymakers are expected to raise rates by 25 basis points to 2.25%. Investors will focus on President Christine Lagarde's guidance regarding whether further tightening remains likely later this year.

GBP/USD is broadly steady after recovering from a three-week low earlier in the week. Attention is turning to Friday's UK GDP report and next week's busy calendar, which includes inflation data, retail sales figures and the Bank of England's rate decision.

Oil rises on renewed Middle East tensions

Oil prices are rising as renewed tensions between the U.S. and Iran revive concerns over supply disruptions in the Middle East.

Prices jumped after President Trump criticised Tehran following the latest exchange of strikes between U.S. and Iranian forces. The developments have shifted attention back towards geopolitical risks after hopes for a diplomatic breakthrough had briefly improved sentiment.

While weaker Chinese crude imports could limit the upside for now, the broader supply backdrop remains supportive. Global inventories continue to decline, and U.S. crude stockpiles fell for an eighth consecutive week, according to API data.

As a result, oil prices remain highly sensitive to any escalation in tensions, particularly given the market's limited buffer against further supply shocks.