Donald Trump is unlikely to allow Iran to gain a lasting strategic advantage by controlling the Strait of Hormuz. However, markets would probably interpret any further actions by the United States as an escalation, which could fuel a sell‑off in the S&P 500 index.
The article covers the following subjects:
Major Takeaways
- The S&P 500 is under pressure amid concerns of looming stagflation.
- Brent could rise above $147.50 per barrel.
- Market activity has fallen by 30%.
- Short trades on the S&P 500 can be considered with targets of 6,500 and 6,400.
Weekly Fundamental Forecast for S&P 500
Fool them once, and they may not believe you the second time. By the third attempt, even the truth can be treated as a lie. Markets believe that the so-called Trump Put is no longer functioning as expected: the 70% rally in Brent prices since the start of the year has revived fears of a recession and significant downside for the S&P 500 index, the Fed has signaled no imminent rate cuts, and investor enthusiasm for artificial intelligence appears to have cooled. With its key supports weakening, the broad stock index faces growing downside risk.
Mentions of ChatGPT and Strait of Hormuz
Source: Bloomberg.
When Donald Trump announced the imminent end of the armed conflict in the Middle East, markets initially reacted with enthusiasm. However, that optimism soon faded, and investors largely disregarded the president’s claim that Iran was ready to negotiate. The statement failed to support the S&P 500. Moreover, JP Morgan estimates that dip-buying activity fell by roughly 30% in March.
A stagflation scenario has cast a shadow over the broad stock index, with economic growth slowing while inflation remains elevated amid the Brent Crude Oil rally. According to Bank of America, the situation is reminiscent of 2007–2008, when oil prices doubled, prompting central banks to make reactive policy moves. The European Central Bank, for example, first raised rates and then quickly reversed course, highlighting the risks of misjudged monetary policy.
Crude Price and ECB Refinancing Rate
Source: Bloomberg.
The Federal Reserve risks repeating past mistakes amid the current oil crisis, which the International Energy Agency calls the most severe in history. In the 1970s and 2008, similar oil shocks triggered recessions; however, the global economy today is less dependent on oil than in the past.
Donald Trump faces limited options. Declaring victory and withdrawing could leave Iran with a lasting strategic advantage—control over the Strait of Hormuz. Pursuing military operations to secure the strait or targeting Kharg Island, through which 90% of Iran’s oil exports flow, would likely be perceived as an escalation and could push Brent prices above $147.50 per barrel, a scenario noted by Goldman Sachs.
Persistently high oil prices would likely translate into higher federal funds rates and Treasury yields, rising corporate costs, and weaker financial results. While the US, as a net energy exporter, may fare better than other countries, the economy would still feel the strain. Consequently, the longer the Middle East conflict continues, the greater the risk of a significant correction in the S&P 500. According to Polymarket, the probability of a ceasefire by the end of May stands at less than 50%.
Weekly Trading Plan for S&P 500
Against this backdrop, short positions initiated around 6,800 on the S&P 500 appear well-supported. The broad stock index could test 6,500 and 6,400 as potential targets. Therefore, consider opening short positions on upward price swings.
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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