On Tuesday, US stock index futures soared amid dwindling inflation expectations, and signs that central banks may halt monetary policy tightening. S&P 500 index futures saw a 0.5% increase, while Nasdaq 100 futures rose by over 0.7%. European stock markets reached new monthly highs, driven by increasing banking and industrial equities.
Investors digested OPEC+'s decision to curtail oil production, a move that has already influenced prices and is projected to impact inflation. Investors are expecting that higher oil prices may force the US Federal Reserve to refrain from interest rate hikes, as this could further damage the economy. The Reserve Bank of Australia's decision to pause its tightening cycle, coupled with reduced inflation expectations among European consumers, has bolstered market confidence, leading to predictions of a more than 50 basis point decrease in the Federal Reserve's rates by year-end.
Despite concerns among economists about the risk of prolonged elevated rates, markets are brimming with optimism, driving indices higher.
The Federal Reserve's monetary policy remains a central concern for investors. However, the upcoming earnings season is likely to bring volatility to the market. Of the S&P 500 companies that have reported so far, 15 have exceeded the estimates. Investors will be closely watching US corporate performance. Notably, only 69% of companies outperformed expectations in the previous quarter.
The oil market has posted its largest surge in a year, following OPEC+'s unexpected and significant crude oil production cut. This caught short sellers by surprise, who anticipated steady production levels. As a result, they rapidly closed positions, fueling a more dynamic futures market. As a result, both West Texas Intermediate and Brent added 0.6% today.
As for the bond market, Treasury yields increased across the curve, with the policy-sensitive two-year rate rising by 3 basis points. Following the central bank's decision to pause the tightening cycle amid slowing inflation and economic uncertainty, Australia's policy-sensitive three-year government bond yields fell approximately eight basis points.
Federal Reserve officials recently noted an emerging disinflationary trend as wage growth slows, despite ongoing inflationary pressures calling for further tightening. This has led investors to focus on the end of the global tightening cycle, which may support risk assets and the stock market.
As for the S&P 500's technical outlook, demand for risk assets remains strong. The index may continue to grow once bulls pierce $4,150, pushing the trading instrument higher to $4,184. In addition, bulls need to settle the price above $4,208 to build a new bull market. If the S&P 500 declines amid a lack of demand, bulls should increase their activity near $4,116 and $4,090. If these levels are broken through, the trading instrument is likely to plummet to $4,060 and $4,038.