S&P 500 Bulls Eye Comeback, but Oil and the Fed Hold the Key

• Markets stabilise after rebound but remain fragile amid oil spikes and geopolitical headlines
• Oil prices and Middle East tensions continue to drive short-term equity market direction
• Central bank decisions and key technical levels shape a cautious near-term market outlook

Equity markets are attempting to stabilise following yesterday’s sharp rebound, although the tone remains fragile. Early weakness—largely tied to a renewed uptick in —has kept investors cautious. Still, European equities managed to recover from their lows, helping to limit downside pressure in US futures.

At this stage, markets are almost entirely headline-driven. Developments around the Middle East conflict and fluctuations in oil prices continue to dictate short-term direction. With the decision looming, it’s no surprise that traders are reluctant to take aggressive positions, favouring a more defensive stance in the interim.

Oil, Middle East, and Market Resilience

There’s a growing sense that markets are trying to look beyond current geopolitical tensions. Comments from President Donald Trump yesterday suggesting a potential de-escalation have encouraged some optimism, particularly around the reopening of the key energy route of the Strait of Hormuz.

This tentative optimism has helped underpin equities somewhat and prevented oil from breaking further higher, though Brent still hung around the $100 mark. The resulting pullback in the US dollar also reflects expectations that supply disruptions may ease and the economic damage may not be as severe as initially feared. Reports of some vessels being granted safe passage—if sustained—could further reinforce this narrative.

That said, markets remain far from convinced. Efforts by the US to form a multinational coalition to secure the Strait have seen limited support so far. Without a coordinated response, traders are hesitant to fully price in a smooth resolution. But Trump appears to be doing another “TACO”, and I wouldn’t be surprised if he ends the war sooner than expected.

However, if tensions persist or escalate, the risk is that oil prices remain elevated, which would likely weigh on equities.

Central Banks in Focus

Beyond geopolitics, central banks are back in the spotlight. The Reserve Bank of Australia has already set the tone with another rate hike, signalling that policymakers remain wary of inflation—particularly from energy prices.

Now, attention shifts to the Federal Reserve and central banks in Europe. The key question is whether they adopt a hawkish stance in response to higher oil prices or take a more cautious, wait-and-see approach given the uncertain geopolitical backdrop.

A hawkish tilt could cap equity upside by tightening financial conditions further. On the other hand, a more measured tone may provide short-term support for stocks, especially if inflation risks are seen as temporary.

S&P 500 Technical Analysis And Levels To Watch

From a technical point of view, the S&P 500 continues to trade within a broad consolidation range. Despite persistent geopolitical risks, the market has avoided a deeper sell-off—suggesting underlying resilience and the potential formation of a base.

For the bullish case to gain traction, though, the index must reclaim a key resistance zone between 6,751 and 6,791. This area has been a major pivot point in recent months, acting alternately as support and resistance. A decisive daily close above this region would signal a shift in momentum and likely open the door for a stronger recovery.

On the downside, initial support sits between 6,698 and 6,718. Holding this zone is critical to maintaining near-term bullish structure. Below that, the 200-day moving average—currently near 6,640—remains a key long-term support level and has already attracted buyers on multiple occasions.

A break below the 200-day average on a closing basis would be a notable shift in sentiment. A move below this would invalidate the recent recovery attempt and expose the index to further downside, potentially toward the November low near 6,525.

How to Trade These Headline-driven Markets?

Overall, the market’s ability to hold steady despite elevated oil prices and geopolitical tensions points to underlying strength. While uncertainty remains high, particularly around the Strait of Hormuz and central bank policy, the lack of sustained selling pressure is notable.

For now, the outlook leans cautiously bullish—but with a clear caveat: markets remain highly sensitive to headlines. Any meaningful shift in oil dynamics or geopolitical developments will likely dictate the next major move. With that in mind, it is essential to book profit when markets make it available, before moving onto next opportunities. Also, smaller position sizes and managing risk with extra care is the way to go.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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