Fundamental factors constrain SPX's growth potential

SPX gained 3.87% last week, fueled by a temporary easing of US-China trade tensions and a 90-day tariff truce. However, despite this, fundamental risks continue to weigh on the market, capping potential for sustained further upside.

The decline in US consumer confidence, driven by trade policy fallout and elevated inflation expectations, continues to pose a significant hurdle to sustainable growth. The index has dropped to 50.8 points, marking one of the lowest readings in recent years. Inflation expectations have also risen: annual expectations reached 7.3%, increasing pressure on the Fed regarding a potential rate hike. However, recent Consumer Price Index data came in below forecasts, easing some concerns about accelerating inflation. This provides some support for the stock market, as investors anticipate a more dovish monetary policy from the Fed in the coming months.

An additional risk factor was Moody’s recent downgrade of the US credit rating from AAA to Aa1. Although the influence of rating agencies on markets has diminished since the 2008 financial crisis, this move sparked concerns among foreign investors, leading to a weaker dollar and downward pressure on stock indices.

The technical picture on the daily chart suggests a likely near-term market correction. Prices have approached 6,000, a key testing level, while remaining firmly above the EMA (50) and EMA (20), confirming buyer strength. The MACD momentum also supports the bullish bias. However, the Relative Strength Index (RSI) is in overbought territory near 80, increasing the odds of a pullback. The 6,000 level could act as a major psychological barrier—if tested, profit-taking by investors may trigger a market reversal.

Current recommendation:

Sell SPX at the current price. Take profit – 5600. Stop loss – 6000.