US stock markets have shown some positive activity since the week began, but the upward trend seems weak. The Fed decided to keep interest rates steady, indicating a reluctance to change monetary policy, even though predictions for two more rate cuts by year-end continue. Fed Chairman Powell’s testimony to Congress was cautious. Some Fed officials, however, favor easing, which could impact financial conditions and stock markets if they signal more changes.

Impact of Upcoming Economic Releases

Despite Powell’s caution, US stock markets ended on a positive note on Tuesday. Key US economic reports are coming out soon, including the final Q1 GDP, May PCE rates, June’s ISM manufacturing PMI, and the ADP figures. These will likely influence stock prices. The PCE rate will provide insights into inflation, which may affect the market’s expectations of the Fed’s future moves. A recent ceasefire in the Israel-Iran conflict, following US strikes on Iranian sites, could boost market sentiment. If this ceasefire holds, riskier assets might gain support. Additionally, NATO’s plans to increase defense spending could benefit shares in the defense sector. In technical analysis, the S&P 500 is currently trading between the support level of 5925 and the resistance level of 6140, indicating sideways movement. Narrow Bollinger Bands suggest low volatility; if the index breaks above 6140, it may signal a bullish trend, whereas a drop below 5925 could indicate a bearish outlook. Overall, the data suggests that while equity markets have seen mild gains, there is not much conviction behind the rise. Headlines may show positive results, but deeper analysis reveals a more cautious environment. Traders looking for a clear trend may face disappointment unless more clarity comes forward. This uncertainty largely arises from signals—or the lack thereof—from policymakers. While Powell’s decision to maintain interest rates was expected, the market reacted to his cautious message. He did not commit to any rate cuts, and his tone remained subdued. This reflects a growing belief that, despite speculation, policymakers won’t rush to ease rates. However, some Fed members are leaning towards rate cuts, creating confusion in the market.

Challenges in Market Sentiment

Investors generally dislike mixed signals. When one official is cautious while another is more flexible, this weakens any strong consensus and leaves traders uncertain about whether they should manage or chase risk. We are seeing this cautious optimism reflected in rallies that struggle to build momentum. Looking ahead to next week, markets will interpret several key economic reports. These include final GDP data, inflation trends related to personal consumption, manufacturing sentiment surveys, and private payroll figures. Each report will contribute to the larger question: Will the Fed maintain its stance, or will the data lead to a change? If inflation remains stubborn, traders might need to consider that rate cuts could be delayed further into the year, which would influence asset valuations—especially those priced based on expected easing. News from the Middle East adds another dimension to the overall mood. The announcement of a ceasefire after US military strikes has served as a new risk-on trigger. If the truce holds, support for typically riskier asset classes may continue. Sentiment tends to shift quickly when there’s a perception of easing geopolitical pressure. Conversely, short-lived solutions can quickly turn optimism into a renewed desire for safety. Defense-related stocks may benefit from NATO’s planned increases in spending. While this spending won’t generate immediate revenue, it shapes medium-term expectations for the defense industry, providing a reason for investment in that area. Chart watchers will likely pay close attention to the S&P 500’s range in the coming days. The lower boundary near 5925 serves as strong support, while 6140 acts as resistance. These levels provide clear reference points. A decisive move above 6140 could lead to increased buying, while a drop below 5925 would signal a shift in market sentiment, likely causing more aggressive selling. The narrow Bollinger Bands are also noteworthy. They indicate we might be moving out of a low-volatility period. In such times, volatility usually increases rather than remains low. Once volatility returns, price movements can be swift and unpredictable. It’s better to have predetermined strategies rather than reacting in the moment. Currently, we are navigating mixed signals. Timely economic data and unexpected geopolitical events will likely influence short-term market movements. As it stands, the signals received fall somewhere between reassurance and uncertainty. Create your live VT Markets account and start trading now.

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