S&P Tests Resistance as Market Eyes Fed and Escalating Middle East Tensions

E-mini S&P (June) / E-mini NQ (June)

S&P, last week’s close: Settled at 5979.25, down 70.25 on Friday and 27.50 on the week

NQ, last week’s close: Settled at 21,644.25, down 288.25 on Friday and 145.25 on the week

E-mini S&P and E-mini NQ futures are rebounding from Friday’s modest pullback but are contained within that session’s midday high. The seemingly calm tape comes despite the Iran-Israel conflict escalating through the weekend and remaining at the forefront. Israel’s attack on Iran targeted the country’s nuclear and ballistic missile facilities and came as they were believed to be within days of producing a nuclear bomb. The attacks are ongoing with retaliation from Iran, but have not dismantled Iran’s nuclear capabilities. Furthermore, Iran has threatened to leave the Non-Proliferation Treaty, which seeks to prevent the spread of nuclear weapons. Despite the escalation into and out of the weekend, Crude Oil’s spike Thursday night remains the high, though it was tested in the opening minutes Sunday night. For now, market participants are assuming Iran will not close the Strait of Hormuz. Although Gold pinged a new swing high on the open last night, both commodities have retreated into U.S. hours. On Friday, I (Bill Baruch) joined the CNBC Halftime Report to discuss how I was monetizing call spreads in Crude Oil and Gold in our CTA (Commodity Trading Advisor) Blue Creek Capital Management, video above.

On Friday, Michigan Consumer 1-year Inflation Expectations, although still erroneously high, came down to 5.1%. On Friday, we said, “We will be watching 1-year inflation expectations, which were erroneously high due to the political imbalance of the survey. We believe the May preliminary read hit a cycle high of 7.3% before being revised to 6.6%. Despite continually softer than expected CPI, PPI, the Fed’s preferred inflation indicator, the Core PCE Index, and the NY Fed 1-year estimate at half the value, this consumer read remained an outlier. Why is it important? The Fed believes inflation is a self-fulfilling prophecy. We believe the Fed used unknown tariff impacts to ‘wait and see,’ but at the core of this was their fear that consumers’ perception could drive inflation to be unhinged. Think about it, if you believe gasoline will be $7 a gallon next week, what are you doing this week? You’re filling up your car this week.”

The Federal Reserve begins its two-day policy meeting tomorrow and concludes on Wednesday at 1:00 pm CT. This quarterly meeting produces the bank’s Summary of Economic Projections, which includes the Dot Plot. The Fed is not expected to cut rates, and currently, the CME FedWatch Tool shows a 68% probability of a 25bps cut in September.

E-mini S&P futures have done a good job shaking off geopolitical fears and are testing a critical area of resistance, adjusted to come in at…