S&P 500 falls below 4,200 points to its lowest level since early June

• S&P 500 falls below 4,200 points during the European session on Monday, at its lowest levels since June 1.
• Caution increases in the markets due to fear of an escalation of tensions in the Middle East.
• The focus will be on this week’s top-line US economic data and the release of corporate results, including Microsoft, Alphabet, Meta Platforms and Amazon.

The S&P 500 index extends last week’s decline and falls below 4,200 points during the European session on Monday, while reaching its lowest levels since early June. At the time of writing, the index is trading at 4,203 points, losing 0.45% on the day.

After losing 2.5% last week, the S&P 500 begins the week on the defensive amid increased caution in the markets due to fear of an escalation of tensions in the Middle East.

Investors remain away from risk-sensitive assets as geopolitical tensions remain high and Israel prepares for a ground assault. Over the weekend, the Israeli military said it would intensify airstrikes on Gaza and called on civilians to evacuate the northern region.

On the other hand, investors’ attention will also be focused on this week’s top-line US economic data.

Preliminary data from the Manufacturing and Services Sector Purchasing Managers’ Indices (PMI) for the month of October will be published on Tuesday. Both indices are expected to fall into contraction territory, below 50 points, at 49.5 and 49.9 respectively.

The preliminary figure for the Gross Domestic Product (GDP) for the third quarter will be released on Thursday. Third quarter growth is expected to be 4.2%, up from 2.1% seen in the previous quarter.

Finally, on Friday the underlying Personal Consumption Expenditure Price Index (PCE), the Federal Reserve’s (Fed) favorite inflation indicator, will be released. Core PCE is expected to decline 3.7% year-on-year in September, from 3.9% the previous month.

All of this data will contribute to expectations for further Fed rate hikes. At the time of writing, the CME group’s FedWatch tool shows a greater than 98% chance that the Fed will leave rates unchanged at its meeting. from November 1st. However, it still shows about 25% of new rate hikes for its December meeting.

In addition, the publication of corporate results will continue during the week, which could affect market sentiment if the results disappoint. It is worth noting that on Tuesday Microsoft (MSFT) and Alphabet (GOOGL) will publish results, on Wednesday Meta Platforms (META) and on Thursday Amazon (AMZN), among many other companies.