S&P 500 forecast: TACO saves the day

• S&P 500 forecast: Trump headlines spark a sharp rebound as the TACO trade returns
• Tech earnings take centre stage with Intel, Micron and Broadcom in focus
• Japan’s bond market is a potential macro risk

 

S&P 500 futures were pointing to a firmer open at midday in London, after extending yesterday’s rebound, with AI-related names like Micron and Broadcom leading the charge in pre-market trade. The overall tone has improved, but it’s still not a full-blown risk-on environment. Gold continues to hover near record highs, which suggests some investors are still keeping one eye on potential macro risks. Bond markets remain a key source of hesitation, particularly with Japanese yields breaking into multi-decade highs recently. Bitcoin was also struggling to attract buyers near the $90,000 level, another sign that risk appetite isn’t quite firing on all cylinders yet. Add to that – a busy earnings calendar, and it’s not surprising that traders are staying selective. Banks kicked things off with solid numbers last week, and now attention turns firmly to big tech, with Intel reporting after the bell today. The S&P 500 forecast remains cautiously positive for the time being.

 

The TACO trade makes a comeback

 

It’s been another eventful week for markets, and once again Donald Trump has been right at the centre of it. After his weekend tariff comments initially knocked sentiment, traders took a more cautious approach rather than hitting the panic button. That patience paid off.

 

Markets first breathed a sigh of relief during Trump’s lengthy speech at Davos, where he ruled out using military force to acquire Greenland. Stocks pushed higher, the dollar strengthened, and safe-haven currencies like the euro and Swiss franc slipped. Still, there was lingering doubt about whether tariffs would remain a policy tool.

 

That uncertainty was cleared up when Trump later confirmed that tariffs would not be imposed after discussions with NATO, effectively removing the immediate risk of a renewed trade war with Europe. That was enough to trigger the so-called TACO trade – “Trump Always Chickens Out” – and markets responded with one of their strongest rallies in recent months. Index futures have now recovered most of the losses seen earlier in the week.

 

For the S&P 500 forecast, this episode once again highlights how headline-driven the market remains, and how quickly sentiment can flip when geopolitical risk is dialled back.

 

Japan’s bond market – a potential risk

 

While US equities are enjoying a relief rally, developments in Japan’s bond market are worth monitoring closely. The 40-year Japanese government bond yield recently surged to a record high amid concerns that a potential snap election under Prime Minister Sanae Takaichi could lead to policies that further strain Japan’s already stretched public finances.4

Bond yields saw their biggest swings since Trump’s original trade war back in April last year. Although yields eased slightly yesterday, they’ve started to push higher again, putting renewed pressure on the yen.

 

If Japanese yields continue rising in a disorderly fashion, it could spill over into global risk assets. Japan remains a major player in global capital flows, and any serious bond market stress there could easily feed into broader volatility – something that adds a layer of downside risk to the medium-term S&P 500 forecast.

 

S&P 500 technical analysis and key levels

 

 

The bullish structure in S&P 500 chart still looks intact. Despite the brief tariff-related sell-off, the market has not experienced a meaningful breakdown. The broader pattern of higher highs and higher lows remains in place.

 

The 6852 level now becomes the first key support level for the bulls, followed by 6,823. Yesterday’s low around 6,782 is also important – ideally, that level shouldn’t be revisited if momentum is to remain positive.

 

A break below there would increase the risk of a deeper correction, with technical selling potentially accelerating. In that scenario, liquidity below the December low at 6,717 becomes the first major downside target.

 

On the upside, the 6920 level is the first resistance to watch, followed by the gap from Friday’s close which sits at 6942. Above that, the psychological 7,000 handle is the main level to watch.

 

Overall, the technical picture still supports a constructive S&P 500 forecast.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R