S&P 500 forecast: Tech fuelled rally lifts index to the brink of record

Tracking gains in the Nasdaq, the S&P 500 futures climbed to a fresh record high today, surpassing February’s peak. The cash markets will open later, and we could see a new record high today. The gains came after a sudden de-escalation in the Middle East, while Jerome Powell’s comments on tariff uncertainty failed to temper appetite for risk. Speaking of Powell, there is market chatter that Trump is looking to replace the Federal Reserve Chair early - with the Wall Street Journal suggesting this could happen in as early as September or October. Unsurprisingly, this has led to speculation US interest-rate cuts may come sooner and go further than currently priced into markets. As a result, the dollar has taken another drop and risk assets a shot in the arm, keeping the S&P 500 forecast positive. On a micro level, it is once again technology giants such as Nvidia which have driven the bulk of the latest gains.

 

Powell to be replaced early?

The big news overnight again raised questions about the Federal Reserve's independence. The report from the WSJ suggesting Trump was considering replacing Fed Chairman Jerome Powell early, gave stock markets another shot in the arm, as the dollar and bond yields declined. Whether or not Trump ultimately decides to get rid of Powell early remains to be seen, but has applied maximum pressure on the Fed Chairman to cut rates - so far to no avail.

What market drivers need to be watched?

What about other short-term drivers for the markets? Well, I can think of fairly straightforward ones: tariff and US deficit risks. 

On the latter front, there is the potential for escalation in the coming weeks, as Trump pushes for his One Big Beautiful Bill to be cleared by the Senate by July 4 July.

And then there is the 90-day 'reciprocal' tariff pause expiring on 9 July, which could create a fresh wave of uncertainty if no major deals are on place in time and this deadline doesn’t get pushed out again.

Both these concerns are something Powell and his FOMC colleagues are watching, as sources of inflation risks.

One longer term concern is the sky-high valuations, which has so far not discouraged investors from piling into the markets. The S&P now trades at 22 times forward earnings—well above its long-run average.

 

 

Geopolitics: Iran-Israel ceasefire holding

But despite those concerns, the geopolitical front is offering some respite. A US-brokered ceasefire between Israel and Iran appears to be holding after nearly two weeks of hostilities. President Trump has floated a meeting with Iran next week, but struck a sceptical tone over any nuclear agreement, citing the effectiveness of recent military strikes.

Chipmakers lead the charge

It’s a familiar story: big tech keeps marching as robust earnings and receding geopolitical fears continue to fuel the US stock market’s ascent.

Micron Technology was Wednesday’s standout, surging in extended trading after issuing a buoyant revenue forecast.

Nvidia wasn’t to be outdone. Shares climbed to yet another record in pre-market, climbing north of $156, as the chip giant remains firmly in the AI spotlight.

So, the market is caught between AI-fuelled euphoria and the reality of elevated valuations as well as the potential for raised trade war uncertainty again with the July 9 deadline approaching. And with a Fed unsure of the inflationary fallout, and investors eyeing record territory with growing caution, the path forward may well be less a sprint, and more a measured climb.

Technical S&P 500 forecast: Key levels to watch

 

Source: TradingView.com

 

After closing essentially flat on Wednesday, our SP 500 index, which tracks the underlying S&P 500 futures, have resumed the rally commenced on Monday. With index futures already at a new all-time high, the key question is whether it will kick on from here or we go back lower given that trade uncertainty is still unresolved.

But from a purely technical analysis point of view, the path of least resistance continues to remain to the upside. Thus, we will concentrate on dip buying strategy than looking for a potential top - until markets make lower lows and lower highs again.

 

With that in mind, some of the key support levels to watch include the following:

• 6069 - the mid-June high, which may now turn into support on a potential re-test from above
• 6029 - the high from Monday, marking the launch pad of the latest rally.
• 5984 - the point of origin of this week’s gains, which can be seen on an intraday chart.  

 

The line in the sand now is Monday’s low at 5908. It wouldn’t make sense for the market to go below this level if the trend is still bullish. Should the index break this level, that would be our first lower low in this current cycle. At that point I will have to drop my technical bullish bias on the S&P 500.

Meanwhile, if the rally continues, 6,200 is the next logical upside target given that this is the next round handle above February’s peak of 6148.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R