S&P 500 forecast: Stocks in need of fresh catalyst

The S&P 500 forecast remains positive as the index is perched near record highs, bolstered by a bullish run that began in April. It’s been a steady climb, with several tailwinds lifting sentiment along the way — from Trump’s decision to delay reciprocal tariffs deadline, a welcome calming of tensions in the Middle East, to the US approving the “big, beautiful bill” of tax and spending policies that form the core of Trump's second-term agenda. Ongoing optimism around artificial intelligence continues in the background, which has helped to lift shares of Nvidia to record levels while other chipmakers and AI stocks have also benefitted. But with uncertainty over the US trade policy lingering, the US markets are in need of a fresh catalyst for the next leg up, you’d feel. Consequently, don’t be surprised if we now see a bit of consolidation or a retracement after both the S&P 500 and Nasdaq 100 hit new highs recently. In Europe, the likes of the German DAX and UK’s FTSE 100 also hit new records today, so the recent gains are not just evidenced in the US markets only. Clearly, sentiment is bullish towards global stocks, but it will become difficult for the bulls to justify continued buying without any fresh catalysts – especially on Wall Street. Perhaps the upcoming earnings season could be the catalyst, before the focus turns to the August 1 tariff deadline again.

 

When will the Fed cut rates?

 

Fed Chair Jerome Powell has been under continued pressure from Trump to cut rates, but in trying to maintain credibility, the Fed has so far stuck to the script. The FOMC fears the higher US tariffs will show up in US inflation in the months ahead, making it risky to cut rates now as that could exacerbate price pressures. Still, the market is expecting the Fed to restart the easing cycle soon, with the probability for a September 25 basis point cut increasing in the last few weeks. The CME’s FedWatch tool now attaches a 28% probability to rate remaining in the 4.25-4.50% range at the September meeting, down from 38% a month ago. In other words, the Fed is seen cutting rates with a 78% confidence level in September.

 

A significant chunk of the equity rally has been driven by expectations that the Fed will soon blink — i.e., cut interest rates, which has attributed to the S&P 500 forecast. Yet Chair Powell has remained outwardly resolute. Inflation, in his view, is still too sticky, and the labour market too robust, to justify any immediate loosening. Last week, that stance was put to the test, but the monthly jobs report was too strong to challenge the Fed’s current trajectory, prompting traders to trim bets on a July rate cut. As things stand, the odds of such a move hover are less than 7%.

 

Let’s see how those odds will change when we have important inflation data next week, with both CPI and PPI due, as well as retail sales and UoM consumer sentiment and inflation expectations surveys. We won’t have anything important in terms of data this week, although today’s release of weekly jobless claims data could have some reaction in the FX space.

 

 

Trade tensions lurking in the wings

 

Meanwhile, the latest deadline in trade negotiations came to pass without any drama, but the real test will be August 1, with Trump saying there will no longer be any further delays. Thus far, progress has been underwhelming. And if history’s any guide, Trump won’t hesitate to reach for the tariff lever once more. That could prove a thorn in the side of this bull market, casting a shadow over what has been — thus far — a rather smooth run for US equities since markets bottomed in April. The closer we get to the August 1 deadline without any deals, the more likely the chances of tariff hikes there will be.

 

Technical S&P 500 forecast: Dip buyers still in charge
 

There’s little room for ambiguity for the S&P 500 forecast here: the technical trend is undeniably upward. In such conditions, most trading desks are ignoring the short side altogether. Despite the RSI hovering above 70 — well into overbought territory — technical momentum remains with the bulls. That doesn’t mean one should blindly chase every breakout, of course. But betting against the market without a confirmation of a top is not advised.

 

 

Looking at near-term levels, initial support sits around 6,220 on our US SP 500 chart, which is based on the underlying S&P 500 futures. This level is basically the base of Wednesday’s rally. Deeper support is now well below, courtesy of the recent melt-up. The 6,100–6,148 zone, defined by the previous all-time highs (from December and February respectively), now acts as a key cushion should momentum falter. Here, we also have the 21-day exponential moving average, making it a key zone.

 

Below that zone, the post-ceasefire breakout level at 6,000 will come into focus next.
 

To the upside, we’re in uncharted territory — there’s no historical resistance to speak of except the all-time high itself at 6,285. That leaves psychological milestones 6,300, 6,400 and 6,500 as the next plausible targets.

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R