Stronger dollar may pressure S&P 500 after Q2 rally

The S&P 500 ended the second quarter up 14.9%, its strongest quarterly gain since Q2 2020, closing at 7,499 after a 1.98% two-day rise on June 29-30.

Fund managers rebalanced portfolios at quarter end, selling lagging positions and adding exposure to large-cap technology, artificial intelligence-related stocks and semiconductors. The PHLX Semiconductor index gained 3.9% on June 30, outpacing the S&P 500 and the Nasdaq 100 in the same session. Weekend easing in US–Iran hostilities, adherence to a June 17 interim ceasefire memorandum and planned diplomatic talks in Doha reduced the near-term crude oil shock premium and contributed to equity inflows.

Technical indicators show the recent advance met a descending trendline from the June 2 all-time high. Hourly momentum readings fell from an ascending support after hitting overbought levels on June 30. Short-term resistance is near 7,545. Intraday supports sit at 7,453, the 20-day moving average, and 7,404, the 50-day moving average.

On the macro side, the US Dollar Index broke above a long-standing range ceiling at 100.54 after the June 17 Federal Open Market Committee meeting and reached 101.37 by the close of June 26. The weekly MACD for the dollar moved above zero in the week of June 1 and continued to trend higher. Comparable dollar breakouts in November 2024 and September 2021 were followed by corrective declines of roughly 17%–35% in US equity CFDs in intermarket comparisons.

Market attention is focused on two near-term events. Fed Chair Kevin Warsh is scheduled to speak at 1300 GMT at the Sintra panel of the ECB forum on central banking. US non-farm payrolls and the unemployment rate for June are due on July 2 at 1230 GMT. Hawkish comments from the Fed or stronger payrolls could strengthen the dollar and affect US equity prices.

Quarter-end mechanical inflows and reduced geopolitical risk helped protect technology stocks that had been pressured earlier in June. Market participants are monitoring technical resistance levels and incoming macro data to assess whether recent gains will be sustained or if dollar strength will alter the near-term outlook.