Stocks drop as markets return to risk-off sentiment
Stocks drop as markets return to risk-off sentiment
The bounce in equities had a bit more conviction yesterday, largely driven by renewed hopes that tensions in the Middle East might cool. But if this cycle has taught us anything, it’s that these bursts of optimism tend to fade just as quickly as they appear. It didn’t take long. Fresh rhetoric from Donald Trump suggesting the conflict could drag on has flipped the mood back to risk-off. Markets have responded accordingly, with a sizeable chunk of the last two sessions’ gains already being unwound.
War is unlikely to resolve quickly
There was a slight shift in tone from Trump, noting that Iran has requested a ceasefire, but with a key condition tied to reopening the Strait of Hormuz. That’s interesting, considering just days ago the US appeared more hands-off regarding developments in that critical chokepoint. No doubt Trump will likely attempt to soften his tone to help the markets in his usual social posts. But how effective they will be remains to be seen as markets are building some resistance towards his rhetoric given his unreliability. Crude oil prices climbed some 8% this morning.
Still, any optimism here feels fragile at best.
Iran has been consistent in its stance — the Strait remains effectively closed to the US, Israel, and their allies, which includes most Gulf nations. That alone casts doubt on how quickly any resolution can materialise. Layer on top growing chatter about a potential US ground offensive, and the risk of escalation, not de-escalation, starts to look like the more realistic base case.
There are also warnings from Iran about possible strikes on American business interests in the region. It wouldn’t take much from here to completely wipe out this week’s equity gains — and potentially go further.
S&P 500 futures technical analysis
From a technical perspective, S&P 500 futures remain in a bearish trend, with lower lows and lower highs still firmly in place.
The rally we saw from Wednesday has stalled at the underside of the bearish trend line, with the 6616–6650 zone acting as strong resistance. That area is further reinforced by the 21-day EMA, making it the key area to watch on any upside. The 200-day moving average sits around 6675, with the recent local high at 6685. A move above this zone would be needed to shift momentum back to bullish.
Therefore, for the bearish view to change, we need a clean break above these levels.
On the downside, 6525—the November low—is the first level of support after being reclaimed earlier this week. Below that, 6481 comes into focus. The latter marks the high from Monday, which was later engulfed by Tuesday’s big rally.
If those levels give way, there’s little support until 6350–6355, marking the recent lows. A break below that could open the door towards long-term levels, for example the February 2025 old all-time high at 6166.
What’s on the radar next?
Away from geopolitics, attention shifts to the upcoming non-farm payrolls report. It’s probably too early for the data to reflect any real impact from the current tensions, but it will still serve as a useful gauge of underlying labour market strength — something the Fed is watching closely. Expectations for NFP sit around 65k, with unemployment seen holding at 4.4%.
Also worth flagging: liquidity is likely to thin out heading into the Easter break, which can amplify market moves in either direction, making any headline driven moves even more dramatic.
How to approach these markets
The dilemma is pretty clear — do you respect the risk-off tone and stay defensive, or start positioning for a recovery on the assumption that the worst is behind us?
Right now, it’s hard to make a strong case for the latter.
There are still too many moving parts, and more importantly, too many unanswered questions. Any ceasefire would likely need to come with guarantees that protect Iran’s longer-term strategic interests — and given the lack of trust between the key players, that’s not something that gets resolved quickly.
Even if we do see de-escalation, there are practical considerations too — like whether the Strait of Hormuz fully reopens and remains operational without disruption.
So yes, we might see intermittent rebounds in equities, but they risk being short-lived. At this stage, it doesn’t feel like a clean “buy the dip” environment — more a market that’s still searching for stability, with downside risks not fully priced in.
Trader | Analyst | TradingCandles.com
e: Fawad.Razaqzada@TradingCandles.com
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