S&P500 Forecast: SPX muted ahead of Fed rate decision & big tech earnings

US futures

Dow future -0.13% at 44786

S&P futures -0.14% at 6056

Nasdaq futures 0.17% at 21483

In Europe

FTSE 0.29% at 8560

Dax 0.76% at 21607

Investors continue to assess the fallout from DeepSeek
Big tech earnings kick off with Meta, Microsoft & Tesla
Fed is expected to leave rates unchanged
Oil falls as inventories rise & on trade tariff worries

Fed rate decision & Magnificent 7 earnings

US stocks are heading for a mixed start as they steadied following the sharp selloff at the start of the week, inspired by the cheaper DeepSeek AI model.

The Nasdaq rebounded 2% on Tuesday, recovering some of its 3% losses booked on Monday amid pushback against the quality of the DeepSeek offering and on optimism that a cheaper AI model could trigger widespread demand and lower costs for big tech and startups alike.

Investors will continue to assess the fallout from the steep sell-off earlier in the week but attention is now turning to earnings from mega-cap tech companies and the Federal Reserve interest rate decision.

The Federal Reserve is expected to leave interest rates unchanged at 4.25 to 4.5% after cutting rates by 100 basis points in 2024. Policymakers have been vocal in their support of a slower pace to rate cuts in 2025.

The meeting comes as US growth remains strong, the laboUr market resilient, supporting the pause. However, underlying inflation cooled, and Federal governor Christopher Waller's dovish remarks have also supported expectations of a rate cut in the first half of the year. The market will be looking for hints about when the central bank may reduce rates again. According to the CME fed watch tool the market is pricing in a 30% probability of a rate cut in March, but June is more certain.

The Fed's pausing also buys time for the central bank to assess Trump's policies and their potential inflationary impact. The White House has warned that 25% trade tariffs on Canada and Mexico could be in place on February 1st.

Big tech Microsoft, Meta, and EV maker Tesla are due to report after the closing bell today, followed by iPhone maker Apple tomorrow. The group is part of the Magnificent 7, which underpins strong gains in the stock markets over the past two years. AI is expected to be a central topic, especially after the DeepSeek-inspired sell-off in equities. Silicon Valley previously stated intentions to spend billions of dollars developing its AI infrastructure; however, doubts have been raised over spending levels since the DeepSeek AI model.

Corporate news

Nvidia is set to open 1% lower and is still down 9% week to date following the DeepSeek-inspired sell-off at the start of the week. Investors are still trying to determine what the developments mean for the firm's outlook amid some accusations of IP theft.

Starbucks is set to rise over 2% after the world's largest coffee chain posted better-than-expected sales in fiscal Q1, as some of its turnaround efforts started to bear fruit.

ASML ADRs rose 5.7% after the Dutch semiconductor giant posted a jump in Q4 net bookings, pointing to strong demand for its advanced chipmaking tools even as DeepSeek’s low-cost model raises questions over AI spending.

S&P 500 forecast – technical analysis.

The S&P 500 has recovered from the 5915 low, trading back above the 50 SMA. Buyers supported by the RSI above 50 will look to rise towards 6100 and fresh record highs. Support is seen at the 50 SMA at 6000. A break below 5915 is needed to create a lower low.

FX markets – USD rises, EUR/USD falls

USD is rising for a second straight day as the market turns towards the Fed rate decision. Fed Powell could choose to adopt a cautious stance, which could send the USD higher.

EUR/USD is falling for a third day amid trade tariff worries, a weaker-than-expected German consumer confidence, and ahead of tomorrow’s ECB meeting. The GFK German consumer confidence index fell to -22.4 from -21.4, below forecasts of -20. The ECB is set to cut rates by 25 basis points tomorrow and signal to further cuts.

GBP/USD is falling for a second day amid a stronger USD, and investors were unimpressed by Rachel Reeves’ plans to boost growth. Reeves backed the construction of a third runway at Heathrow and plans to build on the special relationship with the US.

Oil falls as oil inventories rise & on trade tariff fears

Oil prices are edging lower as US crude oil inventories rose, indicating weaker demand and trade tariff risks clouding the outlook.

The American Petroleum Institute reported a rise in crude and gasoline stockpiles last week, while distillate inventories declined. Concerns over an oversupplied market are heightened by expectations that OPEC will press ahead with planned output increases starting in April.

Supply disruptions in Libya are also easing, as oil exports have resumed, meaning that bullish catalysts are lacking.

Concerns of tariff threats from President Trump are also dampening investor sentiment towards oil. Plans to impose a 25% tariff on Canada and Mexico starting Saturday are still a very real possibility. Canada supplies 3.9 million barrels of oil a day to the US, and Mexico supplies an additional 773k bpd. Any cross-border tensions impacting those flows could raise oil prices.

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