S&P 500 Gazes Into Abyss. Forecast as of 18.06.2025
For an extended period, the S&P 500 index largely disregarded external factors, including trade wars, geopolitical events in the Middle East, and unfavorable macroeconomic statistics in the United States. Investors have since come to recognize their misjudgment. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The S&P 500 index may plummet amid the escalation of trade conflicts.
- Geopolitical factors are expected to drive up oil prices and accelerate inflation.
- The Fed does not want to throw a lifeline to the markets.
- Short trades on the S&P 500 index can be considered with targets at $5,900 and $5,800.
Weekly Fundamental Forecast for S&P 500
Every bubble will eventually burst. Driven by market greed, the S&P 500 index has surged by over 20% since its April low. The crowd demonstrated a strong appetite for risk, readily buying the dip despite unfavorable news. Reports of a slowdown in the US economy were cited as a key factor in the Fed’s decision to cut the interest rate. Positive news has been identified as a catalyst for corporate earnings growth. The market reached a consensus that the trade wars had reached their zenith and that the Israeli-Iranian conflict was not anticipated to be protracted. This assessment was overly optimistic.
As soon as individual investors recognize that they were wrong, their bullish positions on the S&P 500 will be liquidated rapidly. The bubble is likely to burst, and there are numerous reasons for this. Insiders are selling US stocks at their fastest pace since November. Executives and their associates are keenly aware that, at some point, tariffs will harm their revenues, dealing a severe blow to profits.
Corporate Insider Ratio
Source: Bloomberg.
The potential risks are too significant to ignore. According to Deutsche Bank, US involvement in the Middle East conflict and Iran’s closure of the Strait of Hormuz could cause Brent crude to double to $120 per barrel. Historically, this has been sufficient to trigger a recession in developed economies.
The G7 countries met at the summit in Canada to conclude trade agreements, but left without reaching any. Donald Trump has expressed his disapproval of the proposals. He refers to himself as a “tariff man” and points out that import duties generate substantial revenue for the US. The potential consequences of escalating trade conflicts cannot be overlooked, and investors in the S&P 500 have recently come to this conclusion.
Meanwhile, the Fed is not planning to adjust the interest rate, regardless of the requests made by Donald Trump. Tariffs and the ongoing conflict in the Middle East could accelerate inflation. According to Bloomberg’s estimates, a rise in Brent to $100 per barrel would result in a 17% increase in gasoline prices and a 3.2% acceleration in PCE by the end of June. The US regulator will not provide support to the S&P 500. Its reluctance to engage is contributing to higher Treasury yields, and it is causing US stocks to be priced higher relative to bonds than they have been since the beginning of the 21st century.
US Equity Risk Premium
Source: Bloomberg.
In light of these developments, investors are increasingly seeking cheaper stocks in Europe and emerging markets. According to a survey conducted by Bank of America among asset managers, 54% of respondents anticipate that foreign stock indices will outperform the S&P 500 over the next five years. A mere 23% of respondents expressed a favorable opinion of US stocks.
Weekly Trading Plan for S&P 500
The market has finally acknowledged the gravity of the situation. Greed appears to be giving way to fear, as evidenced by the VIX volatility index. The S&P 500 index may experience a correction. Therefore, short positions on the index can be opened with targets of $5,900 and $5,800.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of SPX in real time mode
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