S&P 500 broad market index futures
declined by 1.6% to 5,840 points. Reversal opportunities may be available until
next Wednesday. If the benchmark remains above 5,800 points, the chances for
further growth will increase.
Last week saw the U.S. and China reduce
tariffs, U.S. inflation ease, and the Atlanta Fed’s GDPNow indicator signal a
renewed upward trajectory. However, this week, markets were rattled by Moody’s
downgrade of the U.S. sovereign rating and a notably weak Treasury auction.
Concerns intensified after U.S. President Donald Trump introduced a large-scale
tax plan. On Tuesday, U.S. stocks dropped by 0.3%, followed by a 1.6% decline
on Wednesday. The poor Treasury auction was likely influenced by the sovereign
rating downgrade, sparking further losses. The downward trend continued on
Thursday after the U.S. House passed Trump’s tax plan, which is expected to
raise national debt by $5.2 trillion and widen the budget deficit by about $600
billion in the next fiscal year. While tax cuts usually support the stock
market, the current plan lacks sufficient funding mechanisms. Trump intended to
finance the reform through increased tariffs, but this approach may prove
ineffective, potentially forcing the government to borrow more, thereby
increasing demand for capital and pushing up interest rates. This fails to
address the underlying debt issue—something Trump has identified as a key
objective of his presidency.
Yields on U.S. 10-year Treasuries climbed to
4.60% on Thursday, the highest level since February 9. At these yield levels,
further gains in the S&P 500 appear limited. Although a surprising surge in
demand at the Treasury auction helped yields retreat, there is speculation that
the Federal Reserve may have intervened. Yields approaching the 18-year high of
4.90–5.00% present risks to the broader financial system.
Some relief came on Thursday with the release
of strong May PMI figures from the U.S. The services PMI rose from 50.8 to
52.3, exceeding Wall Street’s expectation of 51.0 and marking the highest level
since March. Manufacturing PMI also climbed from 50.2 to 52.3, surpassing the
consensus of 49.9 and hitting its highest point since February. These reports
lifted the S&P 500 index by 0.17% to 5,850 points by the close of trading.
On Friday, the decline resumed. With limited
news expected on the final trading day of the week—apart from U.S.-Iran nuclear
talks—a neutral close would be considered a positive outcome. The index now
needs to hold above key levels until next Wednesday, the end of the expected
reversal period. Fundamentally, investor sentiment could improve next week with
Nvidia’s earnings report.
Large investors have been net buyers
throughout the week. The SPDR S&P 500 ETF Trust (SPY) saw $3.5 billion in
weekly inflows, suggesting continued confidence. However, any strength could be
reversed in the final trading sessions of the week, so it's prudent to wait
until Monday for a clearer picture.
From a technical standpoint, the S&P 500's
outlook has weakened. Futures have returned to the critical 5,800–5,900 range
within their upward channel. If they can stabilize above this zone, the uptrend
could continue with new targets at 6,150–6,250. A fall below 5,800 would signal
a breakdown, shifting targets toward 5,550–5,650. Immediate resistance is found
at 5,880–5,900, with immediate support at 5,780–5,800.
Brent crude oil prices pulled back to $64.07
after testing the resistance at $67.00–69.00 per barrel. Markets are now
focused on the next round of U.S.-Iran negotiations scheduled for Friday, as
well as the upcoming OPEC+ meeting next week, where potential production
increases for July could be discussed. Immediate support remains at
$57.00–59.00, while the long-term outlook still favors a move toward
$75.00–77.00.
Gold prices have shown resilience, gaining on
the back of the Moody’s downgrade of the U.S. sovereign rating. After bouncing
from the $3,230–3,250 range, gold climbed to $3,330–3,350 and is currently
trading at $3,327. If it fails to hold above this range, a retreat to
$3,230–3,250 is possible.
In currency markets, Moody’s downgrade weighed
on the U.S. Dollar. The EURUSD reached its upside target at 1.13500 before
pulling back. If the pair stays below 1.12500, a reversal toward
1.09500–1.10500 could unfold.