The S&P 500 has surpassed 6000 for the first time since February. While there are some economic concerns, the market shows a willingness to buy during dips, driven by hopes for positive trade deals. Recent data suggests that a Fed rate cut is unlikely in the near future. However, this hasn’t hurt the stock markets. The index has surged past May highs and is now targeting the February high of 6147.

Market Sentiment Stays Positive

There are risks, such as a possible failure of the US budget bill or the reintroduction of tariffs, but overall market sentiment remains positive. The index breaking past the May highs confirms that equity traders are looking beyond short-term challenges like monetary policy uncertainty and budget talks. Even with discussions about budget disagreements, equity reactions show that investors aren’t anticipating major disruptions to corporate earnings or economic activity. In fact, many seem to expect further gains, despite reduced hopes for rate cuts. Powell’s recent comments were cautious yet clearly hawkish, leading the market to downgrade expectations for interest rate easing this year. Instead, there’s an emerging view of “higher-for-longer” interest rates. Still, the S&P 500 crossing 6000 shows that traders are currently downplaying the effects of high borrowing costs. This rally is largely driven by the strength of major tech companies, which are benefiting from positive earnings outlooks and manageable inflation data. Although global trade tensions remain a concern, futures positioning indicates a strong desire for equity investment. We see a consistent rise in options volume, especially for shorter-term calls on index ETFs, signaling that traders are looking to capitalize on quick opportunities rather than committing to long-term positions. Yellen’s recent comments on public spending and managing deficits received a calm response, yet futures for the Nasdaq and S&P have continued moving upward. This stability suggests that traders are not complacent; rather, they’re adjusting to a policy environment without rate support, which still leaves room for earnings growth.

Attention on Derivatives and Market Signals

Keep in mind that derivatives related to equity volatility, like the VIX, have remained stable. This often indicates that hedging activity has not increased, aligning with the general appetite for risk in the equity market. Looking ahead, short-term derivatives traders should closely monitor key levels on the S&P. Recent trading ranges show strong support near 5920 and light resistance above 6100. If yields stay stable, we might see more upward movement, as resistance levels haven’t faced significant selling pressure. A noteworthy observation is the tightening of call spreads near the 6150 area, which has occurred alongside a slight decrease in open interest. This suggests some traders are lowering their risk rather than increasing it, a sign that could precede a narrow move towards established technical resistance—something we’ll be watching closely this week. Currently, volatility remains low, but it is not stagnant. As we approach earnings season and gain more clarity on fiscal policy discussions, we could see price fluctuations increase, favoring strategies that benefit from larger movements without a specific directional bias. In all this, timing is crucial. Trades based on data releases should be approached cautiously with tight stops until clearer macro developments emerge. Bond movements continue to influence equities, so monitoring yield curves could provide early insights into market sentiment. Recent shifts in futures term structure suggest the market may be leaning towards expansion rather than retreat. With non-farm payrolls and CPI data upcoming, the outcomes will clarify current assumptions about the monetary policy path. For now, maintaining modest exposure while being ready to scale up around 5900 and tighten above 6150 can keep our risk profile favorable. Create your live VT Markets account and start trading now.

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