S&P 500 rallies as oil, Treasury yields and dollar retreat on Trump de-escalation

FUNDAMENTAL OVERVIEW

Over the past couple of days, the S&P 500 had been under pressure as geopolitical tension built on reports that Trump was considering strikes against Iran before the midterm elections.

Yesterday's bounce followed a Truth Social post from Trump in which he said the US was holding productive discussions with Tehran and would not attack Iran before the midterm elections.

In reaction, the escalation premium was unwound as oil prices, Treasury yields and the dollar all fell after Trump's post, which improved risk sentiment and lifted the S&P 500.

Turning to the outlook, Iranian Foreign Minister Araghchi said yesterday that Tehran was reviewing the latest US proposal, with a reply expected within the next few days. A favourable answer would be good for the stock market, since a selloff in oil would ease inflation and rate-hike worries. A negative response, in contrast, would leave things largely unchanged, though it could cap the upside momentum.

Also next week, the US CPI report is on the calendar, with traders likely hedging into it and putting downward pressure on equities. Hotter-than-expected data could prompt a hawkish repricing and hurt the S&P 500, while a soft reading could fuel a relief rally as those hedges unwind and rate-hike expectations recede.

S&P 500 TECHNICAL ANALYSIS – DAILY TIMEFRAME

After a period of weakness tied to fresh geopolitical tension, the S&P 500 CFD turned higher yesterday once Trump ruled out hitting Iran before the midterms. If the retreat goes further, buyers are expected to lean on the trendline, with defined risk below it, as they position for a push to fresh record highs. Sellers, by contrast, will be looking for a break lower that extends the correction to the 7,500 level next, with 7,613 as the initial objective.

S&P 500 TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

S&P 500 TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

The 1-hour timeframe shows a small resistance band around 7,806. Sellers are expected to emerge in that area, with their defined risk above it, positioning for a fall toward the larger ascending trendline. Buyers, for their part, will be looking for a move above that zone to add to bullish exposure and aim at fresh record highs. The red lines indicate today's average daily range.

UPCOMING CATALYSTS

Today the calendar wraps up the week with the University of Michigan Consumer Sentiment survey, though it is not expected to be a market-moving release.