The Nasdaq has hit new record highs as traders are anticipating a rate cut in September. The latest US CPI report met expectations, keeping the predicted cut unchanged. After this report, the expected Federal Reserve easing adjusted from 57 basis points to 61 basis points. While most Fed members are in favor of a September cut, a strong non-farm payroll report could change future cut likelihood.

Jackson Hole Symposium Highlights

All eyes are on Fed Chair Powell’s speech at the Jackson Hole Symposium. He is expected to emphasize that decisions will be made based on thorough data. The Fed’s cautious approach—despite a strong economy—supports the stock market, maintaining a bullish trend unless rate hikes or negative growth occur. On the daily chart, the Nasdaq shows significant gains and signs of FOMO among investors. Buyers might consider better risk-to-reward opportunities around the trendline, which likely requires a pullback before September. If prices dip below, we could see a drop to 22,400. The 4-hour chart indicates bullish momentum with a minor trendline. Buyers may look to this trendline to achieve new highs, while sellers aim for a drop toward the main trendline. The 1-hour chart advises caution against chasing prices, suggesting opportunities near minor support at 23,965. Upcoming economic indicators like US PPI, Jobless Claims, and Retail Sales will be important, along with Fed comments following the recent US CPI data.

Nasdaq and Federal Reserve Rate Cut Expectations

With the Nasdaq nearing 24,000, the key driver for derivatives traders is the strong anticipation of a Federal Reserve rate cut in September. The recent CPI data from July showed a 3.1% increase, confirming a cooling trend and reinforcing market expectations for monetary easing. According to the CME FedWatch Tool, there is now about a 75% chance of a 25-basis-point cut next month. This scenario—where the economy is strong yet the Fed takes a cautious approach—is very positive for growth assets. We saw a similar situation in 2019 when the Fed made a “mid-cycle adjustment,” cutting rates even in a non-recessionary environment, which led to further market gains. Therefore, the easiest path for the market seems to be upward, unless there’s an unexpected shift from policymakers. For bullish traders, jumping into the market at these record highs may not provide a good risk-to-reward balance. A smarter approach would be to wait for a pullback toward the minor trendline support around 23,800 to consider long positions, such as buying call options or selling puts. As the Nasdaq has already risen approximately 20% this year, being patient for a better entry point is essential. On the other hand, traders looking to hedge or bet on a downturn should watch for a significant break below the 4-hour trendline. This would signal weakening momentum and could be a prompt to buy put options. A confirmed break could lead to a larger correction toward the major daily trendline support around 22,400. In the coming days, we will monitor tomorrow’s Producer Price Index (PPI) and jobless claims for any signs of unexpected inflation or labor market issues. Friday’s retail sales and University of Michigan Consumer Sentiment data will also be key. Any notable discrepancies from expectations in this data may lead to a short-term adjustment in Fed actions before we gain more insights from Jackson Hole. Create your live VT Markets account and start trading now.

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