Stock index futures rose Tuesday as hopes for a US-Iran de-escalation offset a fresh round of US sanctions on Iran. The S&P 500 had pulled back to a key support level from stretched valuations, and traders are now looking to Fed Chair Warsh's Friday speech at the Jackson Hole Symposium for the next catalyst.
Iran mediation proposal lifts sentiment
The S&P 500 and other major US indices had been under pressure over the past week despite little change in the underlying economic fundamentals, a pullback attributed to stretched valuations rather than any deterioration in the outlook. That changed after reports that Pakistan's Chief of Army, Asim Munir, is carrying a proposal to Iranian leaders aimed at reducing tensions between Washington and Tehran, according to Al Arabiya. The proposal reportedly offers to halt the economic siege on Iran and gradually lift sanctions under the framework of the Islamabad Memorandum of Understanding.
Markets read the report as raising the odds of eventual de-escalation. Trump spoke with Munir ahead of his trip, which strengthened hopes for a positive outcome. Separately, Nasdaq 100 futures jumped 1% in Tuesday's premarket as investors shrugged off a separate raft of US sanctions on Iran. S&P 500 futures were up 0.5%. Dow futures rose 0.5%, or 253 points.
The Nasdaq Composite had finished the prior session in the red after fears about artificial-intelligence spending by big tech companies sparked a selloff. The Dow was the only one of the three main indices to close higher that day.
Jackson Hole speech is the next test
Traders are now turning to Fed Chair Warsh's speech at the Jackson Hole Symposium on Friday. A neutral tone that doesn't push back against the recent easing in financial conditions would likely support stocks through lower near-term interest rate expectations. However, a hawkish message warning that the easing could complicate the return of inflation to target may be read as a signal of a tougher Fed stance in September, weighing on risk sentiment.
Support holds near 7,650
On the daily chart, the S&P 500 pulled back to a key support zone around the 7,650 level, where buyers stepped in with a defined risk below it to position for a rally toward new record highs. Sellers, meanwhile, need a break lower to open the door toward the lower bound of the broader channel.
On the four-hour chart, price broke above the downward trendline that had defined recent bearish momentum, a potential reversal signal. On the one-hour chart, the most recent swing high around the 7,715 level could act as minor resistance, with a break above it likely to give buyers more conviction for further upside.
Sources: Investinglive, Barron's
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