Amid tariff uncertainty and its possibly adverse implications for inflation and corporate earnings, the major US equity indices, after massive rallies post-April lows, are witnessing sellers come out at/near resistance.

US consumers are preparing themselves for a jump in inflation in the coming year. The University of Michigan’s May survey of expected change in inflation rates for next year came in at 6.6 – softer than the mid-month reading of 7.3 but much higher versus just a few months ago. Last November, the metric hit a 47-month low of 2.6 (Chart 1). May’s count is the highest since November 1981.

Going out the next five years, consumers do not anticipate this rate of inflation to persist; May’s final reading was 4.2, versus 4.6 mid-month. But even here, the trend is from the bottom left to the upper right, with last December producing a reading of three.

If the University of Michigan’s May survey turns out to be right, it remains to be seen how this would impact corporate earnings. Tariffs will probably cause prices to move higher. Several companies including Walmart (WMT) have expressed similarly, with the retailer preparing to raise prices in the US as soon as last month, owing to the import tariffs imposed by President Donald Trump. The other two possibilities these businesses have is to (1) convince their suppliers to bear the increased cost and (2) absorb the cost themselves and take a margin hit. Chances are, for the most part, businesses will absorb some of the cost and will pass some on to the customer. Earnings are likely to take a hit in this scenario.

Operating earnings estimates for S&P 500 companies have been coming down for a while now for both this year and next. For 2025, for instance, the sell-side expected $277.86 last July; as of last Thursday, they are now forecasting $256.19. For 2026, estimates similarly have gone from $310.02 this January to the latest $295.78 (Chart 2).

If these estimates come through, earnings would have grown 9.8 percent this year and 15.5 percent next. Given the tariff uncertainty, these are elevated expectations. In 2024, earnings grew 9.3 percent to $233.36, which in March 2023 was expected to come in at $246.31. The point is, the downward revision trend in place for both this year and next is likely to only pick up momentum in the months and quarters to come.

This tariff/earnings uncertainty is what led to a 21.3-percent tumble in the S&P 500 between 19 February when it reached a new intraday high of 6143 and 7 April when it bottomed at 4835. The recovery since has been no less impressive (Chart 3). From that low through 19 May when the large cap index hit 5969, it shot back up 23.2 percent. Subsequently, the index came under slight pressure to successfully test the 200-day (currently 5785). It has closed above the average for 14 consecutive sessions now.

As things stand, the daily is extended, and the weekly will soon enter overbought territory. The rather sideways action in the last several sessions has resulted in a wedge/symmetrical triangle (depending on how one draws), and subject to how these candles resolve, momentum likely follows.

In the event the resolution is to the downside, shorter-term averages (10- and 20-day) carry a risk of pointing lower. If weakness develops, nearest support lies at 5700; the 50-day lies at 5605.

There are similar dynamics unfolding in the Nasdaq 100, which is caught in a rising wedge (Chart 4). With the tech-heavy index closing last week at 21341, bulls need to push through short-term straight-line resistance at 21400s; in fact, they had an opportunity last Thursday to do just that when the index tagged 21612 intraday but were unable to keep the gains.

Speaking of which, they are sitting on a lot of paper profit. From the February 19^th all-time high of 22223 through the April 7^th trough of 16542, the Nasdaq 100 plunged 25.6 percent. Then, from that low through last Wednesday’s high, it was up 30.6 percent.

Inability to recapture 21400s soon can result in momentum going the other way. The 200-day rests at 20366, and the 50-day at 19741.

Bulls are also facing stiff resistance in the small-cap arena.

Last week, dual resistance at 2100 continued to repel rally attempts; on both Tuesday and Wednesday, the Russell 2000 traded in the 2090s intraday but failed to break out. In the end, it rallied 1.3 percent for the week to 2066.

The significance of 2100 goes back to January 2021 (Chart 5). Most recently, the horizontal support was breached nearly three months ago, in early March. Just above 2100 also lies trendline resistance from 25 November last year when a new all-time high of 2466 edged past the prior high of 2459 from November 2021.

In essence, 2100 represents a make-or-break moment for the Russell 2000. If it cannot break out, then the bears will be eyeing a rising trendline from April’s low, which is just a stone’s throw away. Last Tuesday’s intraday low of 2058 just about tested this support. It is a must-save for the bulls.

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