S&P 500: on track for a recovery
- SpaceX’s success and geopolitics are driving the S&P 500 higher.
- Investors are hoping for future Fed rate cuts.
Rumours of an imminent end to the conflict in the Middle East, SpaceX’s successes, positive news from the US economy and a decline in the likelihood of the Fed tightening policy have allowed the S&P 500 to resume its rally. The catalyst was Pakistan’s announcement that the final text of the US-Iran memorandum had been agreed upon. Tehran noted that the positions of the parties had never been as close as they are now.
SpaceX opened trading 11% above its IPO price of $135 per share. At one point, the shares rose by 31% but closed the day up 19%. How quickly will the euphoria over buying shares in a loss-making company, whose main profits come from its artificial intelligence division, fade? More importantly, the initial public offering proved successful, allowing us to look forward to the IPOs of OpenAI and other big tech companies in the coming months.
The S&P 500 was buoyed by the University of Michigan’s consumer sentiment index, which recorded its first rise in four months. Americans felt some relief as petrol prices fell and now expect inflation to rise to 4.6% over the next 12 months, down from 4.8% a month earlier, which also helped dampen expectations of further Fed tightening.
The markets expect that, at his first meeting as Fed Chair, Kevin Warsh will emphasise the temporary nature of the inflationary rise. Such ‘dovish’ signals will raise hopes of a resumption of the monetary expansion cycle and provide a tailwind for the S&P 500. Morgan Stanley forecasts it will rise to 8,000 by the end of 2026. Citigroup has raised its forecast from 7,700 to 8,100.
Conversely, other banks and investment firms advise caution. Many of Bank of America’s indicators are sending ‘bearish’ signals, whilst Wells Fargo has described the recent sell-off in chipmakers’ shares as investors waking from a slumber.
In fact, expectations of strong corporate earnings, a robust US economy, reduced geopolitical risks, sustained high demand for artificial intelligence technology, and the belief that the Fed will cut rates sooner or later are creating a solid foundation for the S&P 500 rally to continue. That said, no trend is complete without periods of consolidation.
Summary: The S&P 500 is being supported by geopolitical factors, AI, the US economy and expectations of interest rate cuts, although the risk of a correction remains.
Author
Alexander Kuptsikevich, a senior market analyst at FxPro, has been with the company since its foundation. From time to time, he gives commentaries on radio and television. He publishes in major economic and socio-political media.
