By Rania Gule, Senior Market Analyst at XS.com – MENA
The U.S. stock market has been experiencing noticeable anticipation and volatility since the beginning of this week, as the S&P 500 Index closed down 0.30% yesterday, Tuesday, at 6,370 points, ending a historic six-day winning streak. In my view, this corrective move came amid mounting pressures from multiple directions, most notably stalled trade talks with China, mixed corporate earnings results, and heightened investor caution ahead of the Federal Reserve’s decision on interest rates. I believe this decline is natural and healthy following a strong rally and serves more as a signal of portfolio repositioning rather than the start of a long-term bearish reversal. The market is currently testing its buying momentum in preparation for the next phase.
From an economic perspective, markets are closely watching the Federal Reserve’s decision, widely expected to keep interest rates within the 4.25%–4.5% range. However, what truly matters to investors is not the decision itself but the tone of Jerome Powell’s accompanying remarks. The Fed is in a highly sensitive position, attempting to balance inflation levels near its target while avoiding stifling economic growth, which has shown early signs of weakness in indicators such as the June JOLTS report, which showed fewer job openings. In my opinion, the market is betting that the Fed will leave the door open for future rate cuts if employment and GDP data continue to weaken. This scenario could provide eventual support for equities, but investors are unlikely to commit strongly until Powell delivers clearer signals.
Regarding corporate earnings, this reporting season shows mixed signals. While nearly 82% of S&P 500 companies have exceeded earnings expectations, disappointing results from major firms such as UPS and Whirlpool, whose stocks saw sharp declines, have raised concerns about slowing consumer spending and weakening global demand. Conversely, Boeing delivered strong results with its highest aircraft deliveries since 2018, yet its shares fell more than 4% due to profit-taking and an uncertain outlook. I believe this divergence among companies will likely persist in the short term, making the market increasingly sensitive to results from major tech firms that are driving overall growth.
Trade developments with China also remain a pressure point on investor sentiment. Despite significant progress in talks with Japan and the EU, tensions with Beijing remain unresolved as the deadline set by President Trump for broader tariffs approaches. In my assessment, any escalation in the trade war would trigger another sell-off in equities, while an extension or preliminary deal could offer temporary relief. However, markets will need to see a comprehensive and sustainable trade agreement before regaining a strong level of optimism.
This comes as the S&P 500 has entered a natural corrective phase after reaching new record highs. The selling pressure during the last hour of Tuesday’s session, which pushed the index to its intraday low, indicates weakening short-term buying strength.
Looking at the tech-heavy Nasdaq Composite Index, it also slipped 0.38% despite hitting new all-time highs earlier in the session. Major tech stocks such as Apple, Microsoft, and Amazon remain in focus as their earnings are due this week, and they will have a decisive impact on the market’s direction. In my view, their performance will be pivotal; strong earnings and forward guidance could trigger a sharp rebound, but if results disappoint, a broader market correction could extend to other key indices.
In my opinion, the U.S. market currently stands at a crossroads, with two distinct scenarios emerging: one driven by continued upward momentum, fueled by positive earnings expectations and unchanged monetary policy, and another characterised by a deeper correction if the Fed’s statements sound cautious or negative regarding economic growth. I believe we are heading into a period of heightened short-term volatility with a slight downside bias, though the long-term uptrend remains intact as long as no severe economic contraction or major trade escalation emerges.
Therefore, I believe investors should manage risks cautiously in the coming days, focusing on defensive stocks and companies demonstrating resilience in delivering profits despite current challenges. At the same time, close attention should be paid to the Fed’s remarks and the earnings reports of major tech firms, as these will be the key factors determining whether the S&P 500 resumes its upward trajectory or enters a deeper corrective phase in the near term.
Technical Analysis of ( S&P500 ) Prices:
The S&P 500 index continues its upward trend on the daily timeframe, posting consecutive higher highs and higher lows since mid-year, reflecting strong bullish momentum in price action. On the 4-hour chart, a well-defined ascending channel has formed, with the index currently trading near the psychological resistance zone of 6,380 – 6,400 points. This indicates that the market is approaching a key technical peak, which could trigger short-term profit-taking activity.
As for the technical indicators, the Stochastic oscillator has exited the overbought zone after reaching 87%, increasing the likelihood of a corrective move toward the nearest support level at 6,200 points. The long-term moving average around 5,973 points also acts as a key structural support, maintaining the overall bullish trend. Additionally, trading volumes have weakened as the price approaches resistance, reinforcing the scenario of a short-term pullback before any fresh breakout attempt.
Overall, the broader trend remains positive in the medium to long term as long as the index holds above 6,000 points. However, the recent sharp rally has placed the index in a position prone to short-term correction. A strong daily close above the 6,400 resistance could pave the way for new highs, while failure to break this level may lead to a deeper corrective move toward key support areas, with the major “golden zone” lying between 5,516 – 5,350 points before the uptrend potentially resumes.
Support Levels: 6,200 – 6,000 – 5,973
Resistance Levels: 6,400 – 6,600 – 6,800