S&P 500; US Indexes Fundamental Daily Forecast – Inflation, Geopolitical Concerns Should Lead to Increased Volatility

The major U.S. stock indexes pulled an about face on Tuesday, giving up earlier gains after President Donald Trump said he is not satisfied with the outcome of last week’s trade talks between the United States and China. Trump further rattled investors by saying a highly anticipated summit with North Korea may not happen after all.

In the cash market, the benchmark S&P 500 Index settled at 2724.46, down 8.55 or -0.31%. The blue chip Dow Jones Industrial Average closed at 24834.41, down 178.88 or 0.72% and the tech-driven NASDAQ Composite ended at 7378.46, down 15.58 or -0.21%.

Shares of Boeing weighed the most on the Dow and a weaker energy sector was a drag on the S&P 500 Index.

As far as the trade talks were concerned, Trump said he was “not satisfied” with the trade talks that took place with China last week. He called the negotiations a “start” as his administration keeps working toward a final deal to address trade imbalances with Beijing.

Renewed geopolitical tensions over North Korea also shook up investors enough to pare positions. Since the summit with North Korean leader Kim Jong Un is scheduled for June 12 in Singapore, traders will have about 2 weeks to express their concerns over the outcome of this event. Trump told reporters at the White House, “Whether or not it happens, you’ll be knowing pretty soon.”

Forecast

Trump’s comments created uncertainty in the markets and this was enough to encourage investors to book profits after a prolonged rally in terms of price and time.

Stocks could continue to see pressure on Wednesday on follow-through selling related to Trump’s comments. However, an even bigger influence on the direction of stocks could be the information contained in the Fed minutes.

If the Fed minutes reveal greater than expected concerns over rising inflation then stocks could be pressured because this would mean the central bank would have to be more aggressive in raising rates in trying to stay ahead of inflation.

Traders should also pay attention to volatility. Although stocks have rallied for nearly two weeks, the move was relatively calm, pushing volatility lower. Furthermore, we went through a relative calm because of the easing of geopolitical tensions. However, I expect volatility to return this week because the two major concerns – rising inflation and geopolitical worries – may be coming back with a vengeance. So start preparing for wild swings and triple-digit price moves.