S&P500: Pre-Market Futures Higher as Optimism Builds, Oil Signals Risk

Futures Edge Higher as Peace Talk Optimism Carries Over

The major U.S. stock index futures are edging higher early Wednesday, following through to the upside after yesterday’s sharp rally. Driving the optimism in the market after a prolonged decline in March is investors betting on the easing of tensions between the U.S. and Iran.

At 07:23 GMT, E-mini S&P 500 Index futures are up 0.23%, while the E-mini Nasdaq-100 Index futures gained 0.4% and the E-mini Dow added 64 points.

In the cash market on Tuesday, the blue chip Dow jumped over 1100 points, with the benchmark S&P 500 and tech-heavy Nasdaq climbing 2.9% and 3.8%, respectively.

Trump’s Exit Timeline Gave Investors Something to Work With

In my opinion, investor sentiment improved after President Trump signaled that U.S. forces could exit Iran within “two or three weeks.” That statement was key because it lifted fears of a prolonged war that could raise inflation, stunt economic growth and most of all derail the Fed’s plans to cut rates. It also gave professionals something to work with in terms of hedging away the risk instead of just selling stock and moving to cash.

The Trump quote wasn’t the only bullish influence. There were also reports that Iranian President Masoud Pezeshkian may be open to ending the war under certain conditions. Additionally, the Wall Street Journal and New York Post said there may be a possible resolution even if the Strait of Hormuz remains partially closed.

Energy Traders Are Telling a Different Story

Equity traders tend to discount events, while looking toward the future. This may be why investors chose to ignore the fact that oil prices are still elevated. While equity traders chose to be optimistic, I think energy traders expressed a more cautious signal. This is why some are casting doubt as to whether the stock market rally was the start of something big, or just a technical rebound fueled by oversold indicators.

I’m only cautiously optimistic about the stock market because I think the rise in oil prices is telling the truth about the situation in the Middle East. This makes me feel that the stock market is still in “sell the rally” mode, and will likely remain there until a new, solid support base is formed.

A Weak Month and Quarter That Investors Can’t Ignore

Looking ahead, in the bigger picture, I don’t think investors can ignore the weak month and quarter for the major indexes. Sure, cheap stock prices represent opportunity, but that doesn’t mean anything without a meaningful shift in sentiment and momentum.

The rest of the week, investors will be watching both incoming economic data like ADP employment figures, ISM manufacturing data and Friday’s Non-Farm Payrolls report and for any confirmation of geopolitical progress. Investors will also be eyeing oil prices and investor confidence. But what I think is most important is that they can’t forget that this is still an interest-rate driven market so everything on the table right now will somehow impact rates and Fed policy.

Technical Outlook

Technically, the June E-mini S&P 500 Index futures contract is still in a downtrend, but Tuesday’s closing price reversal bottom and today’s confirmation has shifted momentum to the upside. The first upside target is a trend line at 6696.00, but the ultimate targets of this move are the retracement zone at 6725.00 to 6812.50, and the 200-day, 50-day moving average combo at 6775.00 and 6853.75, respectively.

Since the trend is down, we could continue to see intraday pullbacks, but if traders buy those dips then we should hit those targets over the near-term. Sellers should return on a test of the resistance targets, but those levels will also be trigger points for even bigger rallies, but that all depends on the geopolitical situation.

More Information in our Economic Calendar.