S&P 500 Eyes Record Highs as US Inflation Cools and Trade Risks Recede

Global Market Sentiment Overview

Markets reacted positively to April’s softer-than-expected US inflation data, sending stocks higher, Treasury yields lower, and placing renewed pressure on the US dollar. The data reinforced growing expectations that the Federal Reserve may be able to ease policy later this year, especially in light of reduced trade tensions following a temporary agreement between Washington and Beijing.

CPI Data Surprises to the Downside

Tuesday’s Consumer Price Index (CPI) figures from the Bureau of Labor Statistics provided the catalyst. The headline CPI rose just 0.2% MoM, while the annual rate decelerated to 2.3%, signaling a slower pass-through from last month’s tariffs imposed by President Trump. More importantly for markets, core CPI, which strips out volatile food and energy components, rose just 0.2%, with the annual core figure holding steady at 2.8%, unchanged from March.

These figures fell below economists’ consensus forecasts, bolstering hopes that inflationary pressures are stabilizing without spiraling out of control, despite geopolitical shocks and trade-related friction.

Bond Yields Slide, Fed Expectations Adjust

In response to the data, US Treasury yields fell, with the 10-year note dropping three basis points to 4.44%. Fed funds futures markets are now pricing in a 25-basis-point rate cut by September, with a growing probability of a second cut by year-end. This marks a shift in sentiment, given that traders had previously dialed back expectations for any easing amid sticky inflation and cautious Fed guidance.

US Dollar Weakens as Equities Gain Ground

The Bloomberg Dollar Spot Index slid 0.2%, reflecting diminished demand for greenback as a safe haven. In equity markets, S&P 500 futures advanced 0.2%, continuing Monday’s strong rally that was driven by news of a truce in the US-China trade dispute. The S&P 500 now trades firmly above its 200-day moving average, a key technical indicator often seen as a pivot between bearish and bullish sentiment.

JPMorgan Upgrades Growth Outlook, Bear Market Fears Recede

Adding to optimism, JPMorgan revised its outlook for US GDP, citing lower trade risks following tariff rollbacks by the Trump administration. Chief US economist Michael Feroli noted that while recession probabilities remain elevated, they are now “below 50%”, a notable shift from prior warnings.

This macro re-rating aligns with improving corporate earnings sentiment. A Citigroup earnings revision index turned positive for the first time in six months, suggesting analysts are finally upgrading outlooks after quarters of earnings pressure. According to Bloomberg Intelligence, 77% of S&P 500 companies beat earnings expectations in Q1, with aggregate earnings growth reaching 13.1%—far stronger than the 6.6% forecast at the start of the reporting season.

Technical Landscape: S&P 500 Eyes Record Highs

The US500 has resumed its bullish structure on the 1-hour timeframe, currently trading around 5,850.84, having decisively broken above the Fibonacci 100% extension level at 5,859.49, with price now targeting the 141.4% and 161.8% extension zones at 5,875.18 and 5,882.21, respectively. The move is unfolding within a rising price channel, confirmed by a bounce from the midline and supported by a steady incline in the Bollinger Band structure.

• The RSI sits at around 67, approaching overbought territory but showing no signs of divergence, suggesting strong underlying momentum. Meanwhile, the MACD has recently printed a bullish crossover above the zero line, with histogram bars expanding – confirming that buyers are in control in the short term.
• The WMA serves as dynamic support, and as long as price holds above the 5,845.00–5,821.59 Fibonacci support zone, the path of least resistance remains to the upside.

Outlook Summary

Inflation Deceleration + Trade Truce = Risk-On Tone

With inflationary momentum cooling and geopolitical risks declining, investor sentiment has clearly shifted into a more risk-on posture. The Fed now has room to maneuver, should economic data soften further.

These figures will guide expectations for the Fed’s June policy decision. A dovish surprise (cooler CPI) would likely drive equities higher, pressure the DXY lower, and provide relief for gold. Moreover, if positive earnings surprises continue and macro data remains stable, a return to all-time highs in US equities appears increasingly plausible.

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