S&P500 Forecast: SPX falls as banks kick off Q1 earnings season

US futures

Dow futures -0.8% at 38140

S&P futures -0.88% at 5150

Nasdaq futures -1.2% at 18111

In Europe

FTSE +1% at 8000

Dax -0.07% at 17930

• US Q1 banks earnings kick-off
• Concerns over escalation in the Middle East fuel risk-off trade
• JPM falls despite beating on earnings & revenue
• Oil rises on concerns Iran could attack Israel

Geopolitical risks & bank’s earnings

US stocks are heading lower as investors have plenty to worry about, fueling a risk-off mood. Traders are fretting over the prospect of Iran entering the war in the Middle East, worrying about higher interest rates for longer, and weighing up disappointing earnings reports from the big banks.

US stocks are falling, and gold is rising in risk-off trade as fears rise that the Israel-Hamas war could escalate if Iran directly attacks Israel, which could happen this weekend. Gold rose to a fresh all-time high of $2400. Investors are also selling out of equities, not wanting to hold over the weekend when a possible attack could take place.

The S&P 500 and Dow Jones both lost ground this week amid geopolitical worries and after hotter-than-expected inflation data. Traders scaled back expectations regarding US Federal Reserve interest rate cuts. Meanwhile, the Nasdaq is on track to rise across the week.

The market is now pricing in just a 50/50 probability of the Fed cutting interest rates in July, which has been pushed back from June. The market is still only pricing in around a 70% probability of a rate cut in September.

Comments from Atlanta Fed President Raphael Bostic and San Francisco Fed President Mary Daly will be watched for clues about the central bank's rate outlook.

As well as interest rates earning season gets underway today with U.S. banks setting the tone. However after a strong rally in stocks over the past few months the bar has been set high and judging by the weakness in banking stocks the market has been left disappointed.

Corporate news

Wells Fargo is falling in premarket trade after softer-than-expected net interest income. Total revenue rose to $20.86 billion, ahead of the $20.18 billion forecast, and EPS was $1.2 ahead of the expected $1.07. While corporate and investment banking performed well, net interest income was slightly below expectations at $12.23 billion.

JP Morgan is falling despite beating Q1 earnings and revenue estimates. The bank posted EPS of $4.63, which was $0.44 higher than analysts' forecasts, and revenue for the quarter was $42.5 billion ahead of the $41.84 billion forecasts. Despite these positive numbers, JP Morgan stock is falling 4% as guidance for NII was below expectations.

Intel and AMD fell on reports that China is looking to reduce its reliance on foreign technology by eliminating American chipmakers from its telecom infrastructure. Shares are expected to open around 1.3 and 2% lower, respectively.

SPX forecast – technical analysis.

The S&P 500 continues to trade in a holding pattern capped on the upside by 5220 and by 5150 on the downside. The market will look for a breakout. Sellers will watch for a break below 5150 to extend losses to 5100, the round number and February high. Buyers must defend 5150 to push the price back up towards 5225. Above here, 5277, the ATH comes into focus.

FX markets – USD rises, EUR/USD falls

The USD is powering higher on safe-haven flows and after this week's stickier-than-expected consumer inflation, which has seen the market reassess the likelihood of the Fed cutting interest rates sooner.

EUR/USD is falling sharply, dropping below 1.0650, and is set to fall over 1.5% across this week on ECB-Fed divergence. The ECB yesterday pointed to a June rate cut while sticky US inflation this week means that a June Fed rate cut is pretty much off the table.

GBP/USD is falling despite UK GDP showing that the economy grew 0.1% in February after rising 0.2% in January. The pound is falling in risk-off trade and on expectations that the Bank of England could cut interest rates as soon as June with two cuts this year. The Fed is not expected to start cutting until later and not on the same scale.

Oil rises as Iran threatens to join the war

Oil prices are rising and set to post substantial weekly gains amid escalating geo-geopolitical tensions in the Middle East.

Fears are mounting that Iran could directly attack Israel over the weekend and a direct confrontation between Israel and Iran would point to a dramatic escalation of the conflict in the Middle East. Given that Iran is OPEC’s third-largest producer, this could lead to a sharp rise in fears over supply disruption.

Meanwhile, the International Energy Agency reined in its oil demand growth forecast for this year, citing weaker consumption expectations in wealthier countries.