S&P 500 forecast: Stocks remain on the front-foot after big upsurge

 

Risk appetite remained firm in the first half of Thursday’s session. Investors, for now at least, seem content to look through the noise coming out of the Middle East and remain focused on the underlying fundamentals. The shift back into equities, alongside renewed demand for pro-growth and higher-yielding emerging market currencies, has kept the dollar on the back foot. Unless we get a major re-escalation in the Iran conflict that sends oil prices surging to near recent highs, the near term S&P 500 forecast looks set to remain fairly constructive — with risk assets gently supported and the dollar drifting a touch lower. S&P 500 futures were nudging higher again after closing above the 7,000 mark for the first time, while Nasdaq 100 futures were helped in part by upbeat signals from TSMC.

 

Analysis: what’s driving stocks so strongly?

 

If you’d said a couple of weeks ago that the Strait of Hormuz would still be effectively shut, Brent oil holding above $95, and yet the S&P 500 would be charging to fresh all-time highs within days, it would’ve sounded far-fetched. But that’s exactly how things have played out. On Wall Street, the absence of further escalation in the Persian Gulf seems to have been interpreted as a green light. Equities have continued to grind higher, with both the S&P 500 and Nasdaq 100 pushing into record territory as investors lean into hopes of a ceasefire. A solid run of corporate earnings has only added fuel to the move.

 

Markets have clearly been pricing in a more constructive outcome as the US and Iran head towards another round of talks, with risk appetite reflecting that optimism.

 

It’s also peak earnings season, and the numbers have been doing plenty of the heavy lifting. Trading revenues from major banks such as JPMorgan Chase and Citigroup have impressed, driven by fixed-income and equities trading.

 

The tech space also remains a key pillar behind the broader rally. Earnings expectations for the sector have been revised higher, which has given investors plenty of confidence to keep buying dips, ahead of major tech earnings. This was underscored by TSMC, which raised its revenue outlook and pointed to ongoing strength in AI-driven chip demand. The company reported a 58% jump in profit, suggesting that, at least in these early stages, the conflict in the Middle East hasn’t derailed the broader AI investment story.

 

Technical S&P 500 forecast

 

Following the rally to fresh all-time highs, momentum is starting to look stretched, raising the risk of short-term profit-taking. That said, the broader trend remains firmly bullish keeping the S&P 500 forecast bullish from a technical standpoint. A period of consolidation, or perhaps a modest pullback, would be healthy, allowing indicators like the RSI (currently near 70 on the daily) to cool off. On the weekly timeframe, RSI is not yet extreme, suggesting there’s still room for further upside.

 

 

Unless the Middle East situation escalates sharply, the path of least resistance remains higher for US stocks.

 

With our US SP 500 index, derived from S&P 500 futures, in uncharted territory, resistance levels are limited. Focus instead on psychological levels like 7100 and 7200, along with Fibonacci extensions at 7205 (127.2%) and 7448 (161.8%) as upside targets.

 

On the downside, initial support is seen at 7013 (prior record high), then 7000, followed by 6970, 6890 and 6847. A break below 6847 would weaken the near-term outlook.

 

Slightly longer term support sits around the 200-day moving average near 6700 and the breakout zone between 6609-6636, though a move that deep would likely require a major risk-off catalyst.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R