S&P 500 forecast: Stocks extend rally to new highs

Stock index futures on the Nasdaq and indeed S&P 500 both hit new highs on Monday as Canada withdrew its digital services tax on technology companies to restart trade talks with the US, after Trump on Friday said he was ending all trade discussions with Canada in retaliation for the digital tax. Sentiment remains positive for US stocks thanks to the sudden de-escalation in the Israel-Iran conflict. Following the ceasefire, investors have rushed back to the racier tech sector, which helped to push the Nasdaq 100 to new highs last week, before the S&P 500 joined in. Without a major bearish catalyst, the short-term S&P 500 forecast remains positive.

 

What lies ahead for markets this week?

Markets will stay glued to US economic updates – especially from the jobs sector – in the week ahead (more on this below), though for as long as there are no major escalations again in the Middle East or in the trade war, you’d think stock markets may not suffer much on any macro data. Still, there is always room for surprises.

 

The biggest catalyst for financial markets as a whole could be progress in trade talks – of a lack thereof – with the July 9 deadline looming. With just 10 days to go until then, it looks like Trump’s tariffs are set to resume for most countries as there are no major signs yet of any sweeping trade reforms happening. That doesn’t mean that Trump won’t extend that deadline, but it is a risk worth watching.

 

Beyond data and trade, it is the “Big Beautiful Bill" that could have a major impact. Senate Republicans narrowly advanced the budget bill in a 51-49 vote to open debate on the bill, ahead of Trump’s July 4 deadline. The bill would raise the US debt limit and add trillions more to the debt pile. So, there is a risk it may trigger another bond market rout but for now investors are focused on the positive impact it may have on the economy in the short-term. If passed in the Senate, the bill would go back to the House of Representatives for approval.

 

US jobs data could influence S&P 500 forecast and Fed rate decision

 

Among this week’s US jobs data area JOLTS Job Openings Tuesday, 1 July and the June Non-Farm Payrolls report on Thursday, 3 July. Job openings data has become a proxy for labour market health. A strong print could offer the dollar some relief; a weak one, and stock markets might be hit with some selling. But it is if obviously the non-farm payrolls report that is the bigger one on Friday, as the same applies to this report in regards to potential market reaction. With ISM services and jobless claims also on deck the same day, this could be the make-or-break moment for July rate cut expectations. For now, traders are currently pricing in at least two basis point rate cuts from the Fed this year, with around a 60% chance of a third on by December. The data will need to be quite week to justify these expectations.

 

Another macro event to watch this week is the ECB Forum on Central Banking, where central bank heads including Powell, Lagarde, Bailey and Ueda will speak on a policy panel in Sintra on Tuesday, July 1. Any dovish shift from these officials could provide further support for stock markets, while hawkish surprises should have the opposite effect.

 

Technical S&P 500 forecast: key levels to watch

 

 

Our US SP 500 index, which is based on the underlying S&P 500 futures, climbed to a new all-time after a 6-day winning streak (now on its 7^th day if it can hold the gains into the close). The renewed momentum has lifted the RSI back to 70 which need to unwind again either through time or price action in the days and weeks to come. The RSI at “overbought” levels does not mean a drop is imminent, but does serve as a warning to the bulls to protect gains and proceed with a bit more care now after such an extended run. Anyway, there are lots of support levels on the way down that could provide a floor on any short-term dips. Among them, the February’s old all-time high comes in at 6148, making this the first support to watch. Below it, 6069 and then 6029 are the next levels that may offer support, followed by the big one: 6,000. The line in the sand is at 5908, marking the most recent low. Unless this level now breaks, the overall S&P 500 forecast will remain positive from a technical point of view even if we get a bit of a mini correction in the days ahead.

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R