Société Générale is concerned about a potential market bubble if the S&P 500 exceeds 7,500. They predict that the index could reach 6,900 by the end of 2026, with a possible range between 6,500 and 7,250, especially if valuations shift in a climate of interest rate cuts. This expected growth is due to several factors, including lower oil prices, a legislative initiative called “The One Big Beautiful Bill,” and fewer regulations. Other contributors include increased government spending worldwide, streamlined supply chains, and rising earnings per share.

Predictions for the US Dollar

Société Générale also foresees a weaker US dollar, with the EUR/USD expected to hit 1.2. They believe this weakness will continue until Federal Reserve rates fall to around 3% or the yield curve approaches 100 basis points. As of August 4, 2025, the analysis shows that the S&P 500 still has room to grow. The index is currently around 6,850, making the year-end goal of 6,900 quite achievable. In the upcoming weeks, the trend looks upward, driven by expectations of ongoing economic support. It may be wise to buy call options on the S&P 500 to take advantage of this momentum, particularly since the VIX is low at around 14. This outlook is backed by the Federal Reserve’s recent shift to cutting rates, with the current federal funds rate at 4.25%. Additionally, fiscal support from the new American Innovation and Infrastructure Act should help keep equity prices strong. However, we must be cautious of a bubble above 7,500, so it’s smart to prepare for a potential downturn. Buying out-of-the-money put options with longer expiration dates can protect our long positions. This tactic serves as affordable insurance, similar to the market surge in late 1999 before the correction in 2000.

Strategic Trade Opportunities

Another important trade centers on the weakening U.S. dollar, a direct result of the Fed’s policies. With the EUR/USD now at 1.17, reaching 1.20 seems likely. We can utilize currency futures or options to bet on further dollar weakness against the euro soon. The current environment allows us to take advantage of upward trends while also setting up safety measures. One effective strategy for the next few weeks is to use bull call spreads to profit from a controlled rise toward the 7,250 level while keeping initial costs low. This approach balances optimism with caution about potential market overextension. Create your live VT Markets account and start trading now.

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