Where we are: S&P 500 futures are trading slightly lower, around 5295, as the European session progresses. The index is consolidating after last week’s rally to record highs, trading within a tight overnight range of 5288-5302. Resistance sits at the all-time high of 5325, with initial support around 5270, a level that held well during the early European session.
What’s driving it: The near-term direction for the S&P 500 hinges on the US interest rate outlook, particularly as inflation concerns linger despite a strong equity market. Rising US real yields, currently at 2.1%, are putting pressure on risk assets and providing a headwind for gold. Affirming the full-year outlook from Home Depot is welcome news stateside, though this hasn’t translated into broader risk-on sentiment as Wall Street frets over a potential correction. The move in yields is the key thing to watch.
- US 10-year yields rose 12bp yesterday to 4.59%, reflecting persistent inflation worries and hawkish Fed expectations.
- Pending Home Sales data at 10:00 ET today could offer clues about the strength of the US housing market and overall economic activity. A weaker-than-expected print (forecast 1.0% m/m vs previous 1.5%) could prompt a dovish repricing.
- Net non-commercial positioning in S&P 500 futures is modestly short (-138,905 contracts), suggesting limited immediate squeeze risk, although a strong upside surprise could see this positioning reverse quickly.
NY session focus: Today’s US Pending Home Sales data at 10:00 ET will be a key focus for gauging the near-term economic outlook. Watch for a break above 5305 to trigger a test of the all-time high at 5325, while a break below 5270 could open the way to 5250. The market will also be closely watching Nvidia’s earnings report tomorrow. The trade that’s working is fading rallies in AI infrastructure names. The trade that’s at risk is chasing momentum in large-cap tech. The pain trade for the S&P 500 is a strong home sales number combined with hawkish Fed rhetoric, triggering a sharp bond sell-off and equity reversal.