S&P500 Forecast :SPX flat ahead of a busy week

Congress building
Fiona Cincotta
By :  ,  Senior Market Analyst

US futures

Dow futures -0.04% at 38090

S&P futures 0.0% at 4889

Nasdaq futures 0.12% at 17435

In Europe

FTSE -0.08% at 7639

Dax -0.47% at 16875

  • Stocks in wait and see mood
  • Big tech earnings and Fed rate decision in focus
  • USD rises, extending last week’s gains
  • Oil rises to a 2-month high 

Big tech earnings and Fed rate decision in focus

U.S. stocks are pointing to a muted start ahead of a busy week for earnings and ahead of Wednesday's Federal Reserve interest rates decision.

US indices continue to hover around all-time highs after data this year has highlighted the resilience in the US economy while inflation continues to ease, which could help the Federal Reserve to cut interest rates.

US rate cut expectations will be very much under the spotlight this week. Jerome Powell surprised the market at the December Fed meeting by not pushing back against rate cut expectations. Investors will be watching to see what he does this time, given recent data.

The market has reined in rate cut expectations since the rate cut euphoria of last year. The CME fed watch tool shows less than a 50/50 probability of a rate cut in March. This is down from around an 85% probability at the end of 2023.

On Friday, core PCE, the Fed's preferred gauge for inflation, showed that prices cooled, supporting the view that the Fed could cut rates in the coming month. However, strong personal spending suggests policymakers are under little pressure to rush into the move.

As well as the Fed, earnings from the magnificent tech stocks will also be in focus, with the likes of Microsoft and Alphabet due to report tomorrow after the close and Meta, Amazon, and Amazon set to report on Thursday after the close. Investors will be looking to see whether the multibillion-dollar investments in AI are resulting in financial gains.

Corporate news

American Airlines is set to open 1.5% higher after receiving a broker upgrade from Citi to buy from neutral. Their price target was also raised to $20 from $15.13. Citi cited the diverse sources of revenue and strong demand for premium cabin service for the upgrade.

Boeing is set to rise after Ryanair said that if any US customers refused to take delivery of 737 Max 10 airlines, they would buy them at the right price.

Tech stocks like Microsoft are in focus ahead of quarterly earnings on Tuesday, with investors upbeat that it will report its best revenue growth in two years.

Tesla is set to rise 1% after steep losses in the previous week after Elon Musk warned about slower sales growth.

S&P 500  forecast – technical analysis

The S&P500 continues to trade in a rising channel and is consolidating just below the 4903 record high.  The RSI is in overbought territory, so buyers should be cautious. A rise above 4903 is needed to extend gains towards 5000, the psychological level. On the downside, support can be seen at 4840, the weekly low, ahead of the 4800 round number, the December high.


FX markets – USD rises GBP/USD flat

The USD is Inching high, adding to gains from the previous week as investors look ahead to Wednesday's Federal Reserve interest rate decision. The Fed is expected to leave interest rates on hold. The market will look for clues about when the Fed could cut rates.

EUR/USD is falling, extending losses from last week amid concerns over the outlook for the eurozone economy and on expectations that the ECB could start to cut rates sooner than the Federal Reserve, even as central bankers push back on rate cut bets. This week sees the release of eurozone GDP data and inflation figures.

GBP/USD is holding steady around the 1.27 level ahead of a key week for the pair, with the Federal Reserve and the Bank of England set to announce interest rate decisions. Neither central bank is expected to change monetary policy. However, the BoE could sound more hawkish than the Fed, with UK inflation still up 4% and service sector inflation sticky.

Oil rises to a 2-month high.

Oil prices are rising, adding to last week's gains amid ongoing tensions in the Middle East.

The latest leg higher in oil prices comes after a drone strike launched by Iran-backed militia killed a US service member in Jordan. This marks the first American troop to be killed in the region since the start of the Israel-Hamas war on October 7th and raises the likelihood of increased US involvement in the war.

Additionally, an oil tanker was hit in the Red Sea by a missile off the coast of Yemen. The move has fueled concerns of supply disruption, which had previously been limited. The latest developments add to the positive fundamentals, including the significant drawdown in US crude oil, China's planned stimulus, and stronger-than-expected growth in the US, the world's largest oil consumer.


Related tags: US Open SPX 500 Oil USD

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