S&P 500 forecast: Stocks under pressure ahead of Trump speech

US index futures remained on the back foot, after a short-lived relief bounce, as traders waited for President Donald Trump’s speech at Davos. The key question for markets is whether he chooses to dial down days of escalating tensions with Europe over Greenland. Meanwhile away from geopolitics, traders will be watching the Japanese bond markets closely where signs of trouble have been evident late, while on the earnings from Meta Platforms is set to report its quarterly earnings after the closing bell tonight. For now, the S&P 500 forecast remains cautious and a lot will depend on Trump.

 

All eyes on Trump at Davos

 

But the big market driver right now is Trump’s threat of tariffs in his pursuit of Greenland – and his refusal to rule out military options. This is giving the equity bull run its biggest test since the trade turmoil we saw back in April last year. That said, despite all the geopolitical noise, we’re not quite in full-blown panic mode yet. There is still some hope that Trump strikes a more conciliatory tone in Davos today. If he does, that would almost certainly lift sentiment across markets. But if he doubles down on his hawkish rhetoric, then this could start to spook investors in a more meaningful way than we’ve seen so far.

 

What could Europe do if Trump doesn’t back down?

 

European leaders are weighing up their options in the face of Trump’s tariff threats if the bloc stands in the way of his Greenland ambitions. This is quickly turning into a transatlantic standoff not seen for decades. The first option is diplomacy. So far, that hasn’t delivered much. There is a growing acceptance in Brussels that Trump is serious about Greenland, and that talking alone has failed to shift his position. Still, the meeting of leaders in Davos offers an opportunity for face-to-face talks, with European leaders eager to persuade Trump to back down. If that happens, it could spark a fresh leg higher for global stocks.

 

Anything is should keep stocks under pressure, including a delay in ratifying the EU–US trade deal agreed last summer, or more worryingly, if the EU decides to activate the anti-coercion instrument. This is a complex piece of legislation originally designed to be used against hostile states – not close allies like the United States. And yet, the idea is now being openly discussed, particularly by French President Emmanuel Macron. If triggered, it would allow Europe to impose tariffs on US goods, restrict American firms’ access to the single market, and limit their ability to invest in Europe. The economic hit to the US would be significant, and it would almost certainly provoke a swift and hostile response from Washington, potentially tipping the situation into a full-scale trade war. This is by far the most worrying scenario for stocks and risk assets overall.

 

Japan’s bond market implosion poses additional risk to S&P 500 forecast

 

Yesterday’s sell-off in equities was sharp. Alongside fresh threats from Donald Trump, turmoil in Japan’s bond market also played a major role. The country’s 40-year bond yield surged to a record high amid growing fears that a snap election called by Prime Minister Sanae Takaichi could open the door to policies that further weaken Japan’s already fragile public finances. Bond yields saw their biggest moves since Trump launched his trade war on April 2 last year.

 

US Treasuries sold off as well, the dollar weakened, and the S&P 500 fell by more than 2%, wiping out all of this year’s gains in the steepest drop in over three months. Should Japanese bond yields continue to press higher and do so more abruptly, then risk assets could feel the pressure even more.

 

 

S&P 500 technical analysis and key levels to watch

 

 

Our US SP 500 chart, which is derived from the underlying S&P 500 futures, suggests the bullish trend is not yet completely ended, given that we haven’t yet seen a major breakdown in the trend. For that reason, it is far too early to declare a bearish technical S&P 500 forecast. But that could change if the index starts to break down more support levels such as the area between 6766 and 6780, which was within a few points of being tested at the time of writing. Below that, the December low at 6717 will come into focus next. Below that, there are not many obvious support levels until much lower near the 6500 area So we could see a potentially large correction, should the above support levels give way. On the upside, initial resistance is seen at 6823 and 6852, followed by 6920 in the event of a more meaningful comeback.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R