The stock market first fell after the Fed’s hawkish decision but then bounced back thanks to strong earnings from Meta and Microsoft. The S&P 500 saw gains partly because there weren’t many negative factors and economic data improved after a weak first quarter due to tariffs. Recent reports on employment and inflation have also been encouraging, showing good job numbers without too much wage growth. The Fed decided to keep interest rates steady, with some members suggesting a cut. However, their message about uncertainty lessening was not as dovish as expected. The market responded more to Fed Chair Powell’s press conference. He did not suggest future rate cuts and maintained a neutral stance, which caused a brief dip. This was quickly reversed by strong corporate earnings. Moving forward, market expectations will depend on new data, with corrections possible if hawkish information arises.

SP 500 Technical Analysis

The S&P 500 technical analysis shows ongoing highs due to the lack of bearish factors, creating a “chasers” market. Buyers find the best risks and rewards around the 6,200 support level, while sellers are looking for a drop towards 5,800. In the short term, trends are upward, driven by solid earnings, but this climb is not likely to last unless macro indicators change. Important upcoming US data releases could steer market direction, with key indexes and employment figures on the way. The Fed’s cautious approach caused some temporary weakness, but strong earnings from Microsoft and Meta lifted the S&P 500 to new highs near 6,450. This indicates that strong corporate performance currently outweighs central bank policies. Traders will focus on whether economic data can sustain this rally. Data is now the key factor since the Fed is reacting to new information. Today’s Core PCE inflation number for June was still high at 2.8% year-over-year, while initial jobless claims were low at 215,000, indicating a tight labor market. These figures suggest the Fed is unlikely to cut rates soon, potentially leading to a choppy market.

Market Momentum Strategy

Right now, traders are pursuing gains, pushing the index higher with every minor dip. The CBOE Volatility Index (VIX) is around 13, a historically low level indicating little fear among investors. While this complacency can be risky, it suggests an upward trend is currently easier to follow. Traders looking to capitalize on this momentum should look for pullbacks to the upward trendline around the 6,300 level. This area offers clear support for buying call options or selling put spreads, which presents defined risks for another upward push. We expect buyers to step in to protect this trendline if the market dips. The main risk is that strong economic data, like tomorrow’s NFP jobs report, might alarm the market and lead to expectations of a longer-hawkish Fed stance. If the market breaks below the 6,300 support, we could see a quicker decline towards the 6,200 level. Cautious traders might think about buying cheap put options as a hedge against this possibility. We’ve seen similar patterns before, like in 2023 when stocks struggled with a firm Fed stance but eventually climbed higher. As long as economic growth doesn’t take a sudden downturn, the long-term outlook for stocks should remain positive. The Fed’s decision to keep rates steady or eventually lower them provides crucial support for the market. Create your live VT Markets account and start trading now.

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