This week is poised to bring significant volatility to the S&P 500 Index and its associated ETFs, such as SPY and VOO, as investors navigate a confluence of major catalysts. These include a potential constitutional crisis at the Federal Reserve, escalating geopolitical risks in Iran, the start of corporate earnings season, key US inflation data, and a Supreme Court ruling on tariffs.
Federal Reserve Faces Legal and Political Pressure
Federal Reserve Chair Jerome Powell revealed the central bank has received subpoenas from the Justice Department, threatening a criminal indictment related to his Congressional testimony on bank renovations. Analysts suggest the underlying issue is political pressure to cut interest rates, with President Donald Trump having called for aggressive cuts. There is speculation Trump could use a potential indictment as a pretext to fire Powell, following a similar attempt last year with Fed Governor Lisa Cook.
Geopolitical Risk from Iran Protests
Ongoing protests in Iran present another market risk, with the potential for regime change. Military leaders have reportedly briefed President Trump on possible strikes. Prediction market data from Polymarket shows the odds of Supreme Leader Ayatollah Khamenei being out of power by December 31st have soared to 60%.
Earnings Season Kicks Off with Big Banks
The Q4 earnings season begins this week, led by major financial institutions including JPMorgan, Wells Fargo, Bank of America, Citigroup, Morgan Stanley, and Goldman Sachs. Other notable reports will come from BlackRock, State Street, and Delta Air Lines. FactSet estimates point to an 8.3% earnings growth for the S&P 500, potentially marking a tenth consecutive quarter of growth. Historically, final figures exceed estimates by 5-6%, suggesting actual growth could reach around 13%.
Key Inflation and Retail Sales Data Due
The US Bureau of Labor Statistics will release the December Consumer Price Index (CPI) on Tuesday and the Producer Price Index (PPI) on Wednesday. Economists expect inflation to remain above the Fed's target at 2.5%. However, falling gasoline prices and declining mortgage rates indicate inflation may continue to ease.
Supreme Court Tariff Decision Awaited
The Supreme Court is expected to rule this week on the legality of former President Trump's tariffs on imported goods. A ruling against the tariffs would likely boost the stock market, though analysts note the administration has other policy tools to achieve similar protectionist goals.
Technical Analysis Suggests Further Gains
From a technical perspective, the S&P 500 Index is trading at a record high near $6,965 and has broken above its Supertrend indicator, forming an inverted head-and-shoulders pattern—a bullish signal. This suggests the index could test the key resistance level of $7,000 in the near term.
