The S&P 500 broad market index futures are
down 2.6% this week, dropping to 5,942 points, following an unexpectedly sharp
decline spurred by U.S. President Donald Trump. Trump threatened to impose 25%
tariffs and other sanctions on Colombia after it refused to accept deportation
flights from the U.S. Colombia quickly reversed its stance, agreeing to accept
its deported citizens, which averted the sanctions.
Despite this resolution, the incident damaged
Trump's image as a measured leader—a perception he had cultivated last week by
avoiding harsh trade measures against China and other partners. Markets, which
had previously rallied on his balanced approach, are now uneasy. This
unpredictable “sanctions blitzkrieg” has placed the Federal Reserve (Fed) in a
tough position, as a prolonged trade war—even a brief one—could lead to a
10–15% decline in the S&P 500 index. Investors fear that Mexico or other
key trading partners may not capitulate as easily as Colombia.
Trump’s timing has also drawn criticism. Had
he waited until after this week’s Fed meeting to temper his rhetoric, the
S&P 500 could have advanced toward its extreme targets of 6,500–6,650
points. Now, the Fed's response is uncertain, and Trump's erratic actions risk
eroding investor confidence unless part of a broader strategic plan.
Investor sentiment reflects rising
uncertainty. The SPDR S&P 500 ETF Trust (SPY) reported upwardly revised net
outflows of $4.05 billion last week (excluding Friday), and little improvement
is expected following the Colombia episode.
Key corporate earnings could also shape market
sentiment this week. Microsoft (MSFT), Tesla (TSLA), and Meta (META) are
scheduled to release Q4 2024 results on Wednesday, with optimism stemming from
Netflix's (NFLX) strong performance last week. However, Apple’s (AAPL) Q4
report may negatively impact the market.
The Fed is expected to keep interest rates
unchanged, but Chair Jerome Powell faces a delicate decision on how to respond
to Trump’s calls for rate cuts. Powell may buy time by stating the Federal Open
Market Committee (FOMC) requires further evaluation of Trump’s evolving tariff
policies. Recent macroeconomic data, including signs of cooling in the U.S.
economy, could support dovish comments. Q4 2024 GDP, due Thursday, is expected
to slow to 2.7% QoQ from 3.1%, while December’s PCE Price Index—a key inflation
measure—is also anticipated to decline, consistent with recent consumer price
index trends.
The European Central Bank (ECB) is expected to
proceed with further rate cuts, a move already priced into markets. Meanwhile,
Trump’s actions remain a volatile market-driving factor that investors must
monitor closely.
From a technical perspective, the S&P
500's outlook is deteriorating. The index previously reached its primary targets
at 6,050–6,150 points but remains vulnerable within an upside formation. A drop
below 5,935 points could shift the scenario decisively to the downside. For the
index to aim for the 6,550–6,650 range, it must first reclaim 6,150 points.
In commodities, Brent crude is losing
momentum, trading near the $78.00 per barrel support level. A breach below this
level could push prices further down to $69.00–71.00 per barrel.
Gold prices rose to
$2,786 per troy ounce this week, just shy of their all-time high of $2,790. However, prices are retreating and may hover within the $2,760–2,780
range in the coming weeks. Future movements will largely depend on the Fed’s
decisions and Trump’s comments.
In the currency market, the U.S. Dollar
remains in a correction phase. The EURUSD is nearing resistance at 1.05700 and
is poised to climb further toward 1.09500–1.10500 if upward momentum persists.