S&P 500 Forecast: SPX flat as ADP payrolls miss & as Treasury yields remain elevated

US futures        

Dow futures 0.44% S&P futures 0.1%  & Nasdaq futures  -0.1%

European futures

FTSE 0.03%,  DAX  -1.17%

• US stocks flat amid rising Middle East tensions & weaker ADP payrolls
• Payrolls rose 38k vs 47k expected
• Dell rises after earnings beat
• Oil rises as hostilities in the Middle East rise

U.S. stocks fall as yields and oil rise

U.S. stocks are pointing to a flat open on Wednesday as investors weigh an escalation in hostilities between the U.S. and Iran against signs of a weaker-than-expected ADP payroll report.

A ramping up of tensions in the Middle East has brought geopolitical tensions and oil prices to the forefront, reviving inflationary concerns.

U.S. Treasury yields hit a high of 4.814%, a level not seen since November 2023, which is capping the upside in stocks. Despite a strong earnings season, higher borrowing costs could feed through to the economy, dampening economic growth.

With inflation still sticky, heavy government borrowing and growing private investment needs, there is little obvious reason for yields to fade anytime soon. 5% is likely to be the line in the sand which could give investors an excuse to sell out of stocks. This is a level which has attracted a lot of attention in the bond market historically.

Data showed that ADP private payrolls came in slightly softer than expected at 38,000 versus 47,000. This comes ahead of Friday's crucial nonfarm payroll report, which investors will use to assess the likelihood of a Fed rate hike in September.

The market is pricing in a 66% chance that the Fed will hike rates this month, up from 35% last week after a hawkish stance from Fed Chair Kevin Warsh in his speech at Jackson Hole.

Corporate Movers

Dell Technologies has jumped 8% pre-market after beating expectations on both earnings and revenue. Dell also lifted its forecast for fiscal 2027, citing strength in its AI services business.

Palo Alto Networks, the cybersecurity stock, is falling almost 2% after posting better-than-expected earnings for fiscal Q4. The company earned $1.02 EPS on $3.41 billion in revenue, against expectations of 98 cents and $3.35 billion in revenue.

S&P 500 forecast – technical analysis

The S&P 500 trades above its rising trend line, resistance, its 50 and 200 EMAs, maintaining a constructive outlook. The price ran into resistance at the record high of 7,810 and has since eased lower, but continues to hold above support at 7,615, the June high. Therefore, the uptrend remains intact.

Should support continue to hold, buyers will look to rise above 7,700 and push towards 7,820, creating fresh record highs.

On the downside, a break below 7,615 is needed to expose the 50 EMA at 7,590 and the rising trend line support. Below here, attention will turn to 7,300, the July low, ahead of 7,230, the June low.

FX Markets – Dollar firms, EUR/USD falls

The U.S. dollar has pared earlier gains but still trades higher on the day and around a two-week peak on safe-haven flows, amid concerns over the economic impact of the energy shock and rising expectations that the Fed will hike rates in September.

EUR/USD is falling to a two-week low of 1.1575 amid dollar strength, as markets price in a 95% probability that the ECB will hike rates this month. Elevated oil prices are also adding to inflation concerns. Other data showed that Spanish unemployment increased well beyond expectations in August, while Italian producer prices accelerated in July.

GBP/USD is falling to a three-week low amid a stronger U.S. dollar and renewed selling pressure in the gilt market. U.K. bond yields hit an 18-year high, adding to the challenges facing Finance Minister John Healey ahead of his first budget in the autumn.

Oil rises as hostilities in the Middle East ramp up

Oil prices are rising on Wednesday, climbing to more than a one-month high as traders weigh supply concerns following strikes by both the U.S. and Iran overnight.

A sharp escalation in hostilities in the Middle East has increased the risk premium on oil prices, with expectations of further restrictions on traffic through the Strait of Hormuz.

Should the conflict escalate further, Brent, already at $95 a barrel, could head towards $100 a barrel. An announcement that a deal has been reached, or a strong indication of a diplomatic solution to reopen the Strait, could send prices tumbling.