S&P500 Forecast :Stocks drop in risk-off trade and ahead of TSLA, NFLX earnings

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Fiona Cincotta
By :  ,  Senior Market Analyst

US futures

Dow futures -0.53% at 33810

S&P futures -0.75% at 4340

Nasdaq futures -0.76% at 14999

In Europe

FTSE -1.17% at 7590

Dax -0.87% at 15099

  • A diplomatic end to the Middle East conflict looks challenging
  • Earnings season ramps up with Tesla and Netflix
  • Morgan Stanley and United Airlines disappoint
  • Oil jumps on Middle East supply worries

Middle East conflict intensifies

U.S. Stocks have opened lower amid a risk-off mood in the market as investors weigh up escalating tensions in the Middle East and more corporate earnings.

Tensions in the Middle East have intensified after a missile hit Gaza City hospital. Both sides denied responsibility. A planned summit between U.S. President Biden, the Palestinian president and the Egyptian President was swiftly canceled. As a result of diplomatic and to the conflict looks less likely.

Earning season is ramping up with investors digesting numbers from banking giant Morgan Stanley United Airlines and looking ahead to figures from Tesla and Netflix.

Housing data came in mixed with building permits for September, falling 4.4%. However, building starts rose almost 7% after falling to a three-year low last month.

Attention will now turn to Federal Reserve speakers. Recent Fed speakers have questioned whether the Fed will hike interest rates again this year. However, yesterday's stronger-than-expected retail sales and industrial production add to evidence that the economy is more resilient than expected. Any clues from Fed speakers over the future direction of monetary policy could influence equities in the US dollar.

Corporate news

Netflix is trading lower ahead of earnings after the closing bell. Netflix's crackdown on password sharing is expected to have boosted subscriber numbers by around 6 million in Q3.

Morgan Stanley is falling over 6% after reporting a 9% fall in profits compared to a year earlier; meanwhile, revenue grew 2% to 13.27 billion, in line with forecasts.

Procter and Gamble has risen over 3% in early trade after the consumer goods giant posted stronger-than-expected sales thanks to steady demand for its products and despite several price hikes.

United Airlines has dropped over 7% as the air disappointed with its guidance projecting we kept fourth quarter earnings owing to higher cost.

S&P500 forecast – technical analysis.

The S&P500 trades between the 20 and 50 sma, while the RSI is neutral. The falling trendline and the 50 sma crossing below the 100 sma could keep sellers hopeful of further losses. Sellers could look for a fall below the 20 sms at 4315 to extend losses to 4300 round number ahead of the 200 sma at 4250. Buyers could look for a rise over 4400, the 50 sma, and the October high to extend gains towards the 100 sma at 4420 and the falling trendline resistance at 4450.


FX markets –USD rises, GBP falls

The USD is rising on safe haven flow, which is evident as the yen gains and stocks fall. In addition to the Middle East, investors will also look to Fed speakers for further cliues over the future path of rates

EUR/USD is falling due to a stronger U.S. dollar and the risk-off mood in the market. Furthermore, eurozone inflation cooled to 4.3% YoY in September down from 5.2% in August. The detail was in line with their preliminary reading and doesn't change immediate expectations that the ECB has completed its rate hiking cycle.

GBP/USD is falling despite UK inflation unexpectedly holding steady at 6.7% in September, defying expectations of a fall to 6.6%. The data has not immediately impacted expectations surrounding the Bank of England’s November meeting. The market is currently pricing in around a 30% probability of a rate hike in November, although it prices in a 60% probability of a rate hike by early next year.

EUR/USD -0.2% at 1.0550

GBP/USD -0.16% at 1.2144

Oil jumps as Middle East tensions rise

Oil prices are rising on concerns that the escalating conflict in the Middle East could disrupt oil supplies in the region.

The bombing of Gaza City Hospital on Tuesday raised the risk of the conflict intensifying. It resulted in Jordan canceling its summit with U.S. President Joe Biden, meaning that a diplomatic end to the conflict is less likely, and oil markets are increasing the geopolitical risk premium on oil.

Meanwhile, the Iranian foreign minister urged members of OPEC to impose a new oil embargo on Israel, adding to concerns about oil-rich nations being dragged into the conflict. OPEC has not indicated that it will act on Iran's calls.

Aside from geopolitical tensions, US crude stockpiles fell by a much larger than expected 4.4 million barrels in the week ending October 13th compared to the 300K forecast.

On the demand side China's economy growing faster than expected in Q3 is boosting the demand outlook meanwhile the data also showed that the country's oil refinery throughput in September hit a record daily rate up 12% year on year.

WTI crude trades +1.74% at $87.07

Brent trades +1.6% at $90.61

Looking ahead

15:30 EIA oil inventories

17:00 Fed Waller

17:30 Fed Williams

18:00 Fed Bowman


Related tags: US Open SPX 500 USD Oil

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