The S&P 500 has bounced back from recent dips and is gaining strength because of expected interest rate cuts from the Federal Reserve. The market predicts three rate cuts, amounting to 68 basis points, by the end of the year. There’s also an 8% chance of a 50 basis point cut in September, which may depend on a weak Consumer Price Index (CPI) report. Such a report could push the stock market even closer to new highs. Despite some earlier economic uncertainties this year, long-term growth prospects look bright. The anticipated rate cuts and a more stable job market could help boost economic activity, which would be positive for the stock market.

Technical Analysis Of S&P 500

On a technical level, the S&P 500 is moving within a rising wedge pattern on the daily chart, indicating both potential upward movement and risks of a pullback. The 4-hour chart shows a minor upward trend, suggesting that buyers will likely keep buying at this trendline. The 1-hour chart reveals a support zone near the trendline and the 6,520 level, where buyers and sellers are poised for action—either pushing for new highs or potential further declines. Important data to watch includes the US CPI report, Jobless Claims data, and the Consumer Sentiment report from the University of Michigan. The market seems to be ignoring bad news, focusing instead on the prospect of lower interest rates from the Federal Reserve. The weak Non-Farm Payrolls report from September 5th, which showed only 95,000 new jobs, was quickly overlooked. This optimistic sentiment is driving positive momentum for stocks. This morning’s CPI report added to this hopeful outlook, showing that core inflation rose only 0.1% last month instead of the expected 0.3%. As a result, market expectations for rate cuts have increased, with predictions now suggesting over 75 basis points of cuts by December. Talk of a 50 basis point cut this month is also gaining traction, a scenario that seemed unlikely just weeks ago.

Options And Market Sentiment

For traders dealing in derivatives, this environment suggests buying call options on any pullbacks to established support levels. The upward trendline around the 6,520 level on the S&P 500 is a key area to start bullish positions. The aim is to take advantage of the positive momentum driven by expected rate cuts. However, we must be cautious of the rising wedge on the daily chart, which can often signal a correction. As the S&P 500 nears the top of this pattern, buying put options can help protect against potential downturns. With the VIX currently low at 13.5, well below its average of about 19, volatility-linked products offer an inexpensive way to hedge against sudden market changes. The market is focused on the temporary challenges of a stalled labor market that we faced earlier this year. The prevailing view is that upcoming rate cuts will revive economic activity and boost growth in the final quarter. This forward-thinking perspective is why market performance seems disconnected from fundamental factors. Create your live VT Markets account and start trading now.

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