The Dow Jones Industrial Average fell over 1,000 points after Israel’s surprise attacks on Iran. Although positive consumer sentiment data helped cushion the drop, the Dow reversed its week’s gains, ending a four-day winning streak. The University of Michigan’s Consumer Sentiment Index for June rose to 60.5, beating expectations of 53.5. Inflation predictions also improved, with the 1-year figure dropping from 6.6% to 5.1% and the 5-year figure falling from 4.2% to 4.1%.

Federal Reserve Rate Decision

The Federal Reserve is expected to keep its interest rates unchanged in its upcoming decision. With encouraging inflation data, there is about a 70% chance of a rate cut in September, and another cut could follow by December. Despite recent challenges, the Dow remains above the 200-day Exponential Moving Average at 41,800. The 50-day EMA is close to crossing over, suggesting a possible upward trend if supported by technical levels around 42,000. The University of Michigan’s monthly survey assesses consumer financial and economic sentiment. This survey is a good predictor of future U.S. economic activity, showing how willing consumers are to spend. A strong forecast generally boosts the U.S. Dollar. The unexpected military actions in the Middle East caused a significant drop in major U.S. indices, particularly the Dow, which experienced one of its steepest declines in weeks. While the sell-off was linked to geopolitical tensions, traders also noticed encouraging economic indicators. The University of Michigan’s sentiment reading exceeded expectations and showed improved medium-term inflation predictions, which policymakers closely monitor. This rise in consumer sentiment indicates that confidence is increasing, which may support steady spending through the summer. Lower price expectations give the Federal Reserve room to ease policies without igniting inflation fears. The markets have priced in about a 70% chance of a rate cut in September, with another possible before the year ends. Short-term swaps and implied volatilities for rate-sensitive instruments are starting to reflect this outlook more clearly. From a technical viewpoint, although the Dow fell below short-term support during the session, it stayed above the 200-day EMA, softening the drop’s impact. This long-term average is a key indicator of trend stability, and staying above it indicates that bullish patterns are still present, despite short-term swings. There’s also a narrowing gap between the 50-day and 200-day EMAs; if this crossover occurs with high volume, it could spark increased buying interest among short- to medium-term participants.

Consumer Side Resilience

We see the consumer sentiment report as a sign that consumer spending may stay strong, even with external shocks disrupting broader sentiment. Historically, positive surprises in this survey have supported the dollar and increased risk-taking among investors. However, appetite for risk can quickly change when geopolitical risks rise, which is what happened. In terms of market positioning, hedging activity increased significantly after the weekend news, with spikes in options implied volatility and more short-dated put buying. This indicates uncertainty rather than a clear market direction. For those trading indices or rates, it’s essential to monitor the timing of data releases and any Fed comments before September. Long-term yields remained stable, suggesting some confidence in controlling inflation. Under normal circumstances, this would help boost stocks. However, geopolitical risks complicate this assumption. Hedging against extreme risk or taking low-delta positions is becoming more appealing, especially in sector ETFs and emerging market-sensitive rates. We’re watching for market movement around the 42,000 level. If this level stabilizes on good volume and the overall situation remains stable, it may be time to reevaluate short-term bearish strategies. However, any rally towards previous highs will likely require the Fed’s confirmation, especially regarding September rate expectations. It’s also worth noting the differences in how defensive and discretionary sectors are performing compared to the broader market. Markets are responding in layers—first reacting to headline news, then recalibrating based on macro data. Next, we’ll focus on employment and housing figures, as they significantly influence consumer behavior and Fed projections. While noise will remain high, data ultimately determines the validity of guidance going forward. Create your live VT Markets account and start trading now.

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