S&P500 Forecast: SPX falls as Iran-Israel conflict continues, US retail sales drop

US futures

Dow futures -0.47% at 42,318

S&P futures -0.70% at 6007

Nasdaq futures -0.78% at 21838

In Europe

FTSE -0.37% at 8845

DAX -0.83% at 23634

• US stocks fall amid Middle East worries
• Trump leaves the G7 meeting early, fuelling risk-off trade
• US retail sales fall -0.9% vs -0.7% forecast
• Oil rises as the Iran-Israel conflict continues.

US retail sales drop by more than forecast

U.S. stocks are set to open lower as the Israel-Iran conflict continues for a fifth day, hurting risk sentiment and as retail sales fall by more than expected ahead of the Federal Reserve's upcoming interest rate decision.

The Israel-Iran conflict, which started on Friday and shows few signs of de-escalation, has raised concerns of bottlenecks in oil exports, which could impact inflation. Meanwhile, Trump left the G7 meeting early, citing the situation in the Middle East, which has ramped up concerns further.

On the data front, US retail sales fell by 0.% % month-over-month in May after a downwardly revised -0.1% decline in April. Economists had expected a 0.7% fall. The weaker retail sales came as consumer confidence deteriorated throughout the month, owing to Trump's erratic trade policies, and signs of weakness appeared in the jobs market.

Attention will now turn towards the Federal Reserve's interest rate decision, which comes tomorrow. Policymakers are widely expected to leave rates unchanged. However, Federal Reserve Chair Jerome Powell could adopt a more dovish tone in light of recent weaker data.

According to the CME Fed Watch tool, money markets are expecting two more 25 basis point rate cuts by the end of this year, with a 59% chance of the first 25 basis point cut coming in September.

Corporate news

Oil stocks such as ExxonMobil and Chevron are rising, tracking oil prices higher as the Iran-Israel conflict continues.

Solar stocks such as Sunrun and SolarEdge Technologies falling sharply after the sentence changes to Trump's tax bill, revealing the phase out of solar, wind, and energy tax credits by 2028

Eli Lilly is also falling after agreeing to acquire Verve Therapeutics for $1.3 billion. Shares of Verve jumped 77.1%.

S&P 500 forecast – technical analysis

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The S&P 500’s recovery ran into resistance at 6070 last week before easing lower and consolidating around 6000. The 20 SMA has been guiding the price higher, offering support to any dips. Support can be seen at 5940, with a break below here opening the door to horizontal support at 5860. A break below here exposes the 200 SMA at 5820. Buyers will look to close above 6000 and extend gains towards 6130 and fresh record highs.

FX markets – USD falls, EUR/USD is flat

The USD is falling modestly as the two-day FOMC meeting kicks off today amid market uncertainty. Trump left the G7 meeting to return to Washington, citing the situation in the Middle East.

The EUR/USD is unchanged on the day despite stronger-than-expected German ZEW economic sentiment data, which has failed to inspire the euro. Germany's ZEW economic sentiment jumped to 47.5 in June, well ahead of the 35 expected, confirming the continuing improvement in morale in the eurozone's largest economy.

GBP/USD is falling amid risk-off trade and as investors look to UK inflation data tomorrow and the Bank of England interest rate decision on Thursday. The central bank is widely expected to leave interest rates unchanged at 4.25% and could reiterate a careful and gradual approach to cutting rates

Oil rises as the Middle East conflict continues, IEA oil report

Oil is rising due to the ongoing conflict between Iran and Israel, and following the IEA oil report, which sees oil demand is growing this decade.

The EIA sees oil demand growing this decade despite the fact that top oil importer China is seeing peak demand in 2027. Cheap gasoline and slower EV adoption in the US support consumption. The IEA's view sharply contrasts with OPEC's, which says consumption will keep growing over a longer period of time.

Instead, the IEA sees oil demand peaking at 105.6 million bpd in 2029 before easing in 2030. Global production capacity is forecast to rise by more than 5 million to 114.7 million barrels per day by 2030. While supply is expected to be ample, recent events have highlighted the sensitivity of oil prices to geopolitical tensions.

After five days of conflict between Iran and Israel, and despite oil and gas infrastructure being spared from any substantial impact, oil is rising by 2% on the day. Concerns over disruption through the Strait of Hormuz remain a risk, but there appears to be little appetite to close this waterway.