S&P 500 index futures
have gained 1.14%, rising to 6,867 points this week. However, the benchmark has closed lower for two last consecutive days. On Friday, the decline could have accelerated, but
solid corporate earnings released just before the day kept downside pressure in
check.
For five straight trading sessions, the index
set new all-time highs, with the latest peak reached on Thursday at 6,922
points. The market once again
followed a classic “sell the news” pattern and revealed its primary driver over
the past weeks: U.S.-China trade negotiations.
The narrative began on
October 10, when U.S. President Donald Trump threatened China with additional
100% tariffs. Over the next two weeks, the tone from
Washington softened dramatically. Then,
last Sunday just four days before the anticipated meeting with Xi Jinping Trump
administration announced a breakthrough in relations.
The S&P 500 responded with a breakout. On Monday’s euphoria, it surged above 6,850 points. But the attempt to open
a path toward the extreme upside target of 7,100–7,200 proved premature. The rally left behind a second unfilled price
gap in the past three weeks, which is a sign of unstable momentum driven by a
narrow group of mega-cap stocks.
The first negative
signal came on Wednesday, after the Federal Reserve cut rates by 25 basis points to 4.00% and confirmed the end of quantitative
tightening (QT) after December 1. Markets interpreted this
as a green light for future balance sheet expansion (QE). But Fed Chair Jerome Powell
quickly dampened enthusiasm in his signature style. A dovish action by the Fed followed
by hawkish rhetoric of its chair. Powell stated that a December rate cut was
“far from assured.” According to him, if the U.S. labour
market delivers strong data, no further easing may be needed.
Investors were caught off guard. The odds of a December cut stood at 90.0%
before the meeting, but dropped to just 70.0% after Powell’s comments. One
might suggest Powell could
take a look at the Fed’s own
staffing plans, which include laying off 30% of employees in the bank
supervision division by the end of 2026.
Following Powell’s letdown, corporate earnings
brought mixed results. Microsoft (MSFT) and Alphabet (GOOG) reported solid
numbers after Wednesday’s close. But Meta Platforms (META) missed Wall Street’s
profit expectations for Q3. As a result, S&P 500 futures ended Wednesday in
negative territory.
On Thursday came the much-hyped meeting
between Trump and Xi. Everything previously announced by U.S. Treasury
Secretary Scott Bessent and other White House officials materialised:
Washington reduced tariffs on Chinese fentanyl imports from 20% to 10%, and
Beijing lifted export restrictions on rare earth metals for one year. Bessent
confirmed that the final agreement would be signed next week.
Yet markets viewed this
not as a strategic reset, but as a tactical one-year truce, which is more of a disappointment than a breakthrough. S&P 500
futures fell 0.96% to 6,819, their lowest level since Monday. Still, they recovered to close at 6,861.
Rescue came from fresh
portion of earnings reports. Amazon (AMZN) posted its
strongest cloud revenue growth in three years of 20% YoY. Its shares surged 12.4% to $250.55 in the pre-market trading.
Apple (AAPL) also beat forecasts, adding further support with a 1.86% gain to
$276.45. This corporate strength is currently preventing further losses in the
broader index. But such positive momentum may not last. It’s time to end the
government shutdown.
Large investors have added some risk tolerance this week. The SPDR S&P 500 ETF Trust (SPY) reported net inflows of $2.57 billion this week. However,
this does not yet offset last week’s outflow of $4.30 billion.
The technical outlook for the S&P 500
remains ambiguous. The benchmark
has achieved the primary target of 6,750–6,850 points. A sustained move above 6,850 should activate the extreme rally scenario
toward 7,100–7,200. Yet given the fragile nature of the recent advance, this
outcome is far from certain.
In the oil market, the technically
unfavourable phase has ended. Prices
have failed to hold above the three-month broken support zone of $65.00–$67.00 per barrel for Brent crude and have moved back below it.
If prices cannot sustain above $67.00, the downtrend will likely resume toward
$55.00–$57.00 — not far from the ultimate bearish target of
$45.00–$55.00. Conversely, a confirmed break above $67.00
would revive the case for a rebound toward resistance at $75.00–$77.00.
Gold prices are performing a correction at 11.2%. The key support zone at
$3,800–$3,900 per troy ounce has been tested. Prices could follow the 1979
playbook staging another powerful rally toward $5,000 by late 2025 or early
2026. Alternatively, the pullback could extend deeper
toward $3,500.
In the currency
market, the U.S. Dollar strengthened. Powell’s hawkish comments weighed heavily
on EURUSD pushing it down 0.90% to 1.15470. A second
attempt to close the unfilled gap at 1.17380 now looks more difficult. To
regain bullish momentum, the pair must sustain above resistance at
1.16400–1.16600. A break below support at 1.15400–1.15600 would open the door
to further declines toward 1.14500.