S&P 500 Index
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The Federal Reserve's annual symposium at Jackson Hole became a perfect place to put the final line under the doubts of Wall Street sceptics. Its chair Jerome Powell used a gas pedal on August 22, citing "downside risks to employment" in the U.S. economy. At the same time, he simply neglected to mention inflationary pressures that had previously peppered most of his previous speeches.
Powell clearly opened his set of remarks by offering an unequivocal sign to businesses and investors that the U.S. central bankers are going to reverse their too hawkish monetary course very soon. “The shifting balance of risks may warrant adjusting our policy stance", while labour markets remain "a curious kind of balance that results from a marked slowing in both the supply of and demand for workers”, he said, adding that this "unusual situation" suggests that more downside risks may materialize "quickly in the form of sharply higher layoffs and rising unemployment”. So the Fed showed that it didn't crack under U.S. president Donald Trump's public threats, but it is going to change its stance to show that the policy makers simply can't ignore the more than 250,000 payrolls revision over the past two months accompanied by weak, barely double-digit fresh Nonfarm payrolls.
The stock investors are just quick on the uptake when hearing exactly this type of language used by Fed officials. The S&P 500 major barometer had been on a slow and slight decline but for the four straight trading sessions from Monday to Thursday last week, something it hadn't done since early April's tariff worries, but briskly erased and covered all those losses in less than one hour, jumping 1.5% to respond to Powell's comments. Eventually, the index closed at 6,467.70, its highest level ever. The move opens the door to the new sky-high records.
Three weeks ago, the same crowd considered weak jobs as a blessing for earlier rate cuts. CME FedWatch tool showed a nearly unanimous opinion of futures traders who were clearly betting on the first rate cut in a new cycle as soon as the September meeting. That conviction was still strong but fell to 75% before Powell's speech because of some other Fed member's remarks and mixed producer price data. But this bet for at least 0.25% cut on September 17 comes to about 98% once again after the clearly dovish Powell. By mid-December, the crowd is confidently expecting a rate of 0.5% lower than now, i.e. within the range of 3.75% to 4.25%. "This is about as explicit a ’we’ll probably cut in September’-type statement as one can expect from the Fed chair," said analysts at Vital Knowledge. That's one perfect sentence for what actually happened.
As we've been talking for many months about price targets like 6,850 or even 7,000 for trading S&P 500 futures, right now even the most cautious representatives of the expert camp are agreeing with this concept of a large rally extension. And so, we have a rising bullish environment. As a good example, the UBS investment bank, which had previously held estimates around 6,500, is shifting its year-end S&P 500 target to 6,600 as a starter, with its renewed June 2026 target at 6,800. Goldman Sachs and JPMorgan, are talking about over 6,850 before the end of 2025 already. More rate cut expectations also switch a green light to the further weakening of the Greenback vs other reserve currencies, including the Euro.
S&P 500 Index
As it is the most commonly used stock index it has some unique features a trader should keep in mind:
- The index represents the broad stock market performance since it lists companies from various sectors. It is not focused on specific industries or segments like the Dow Jones index family and the Nasdaq index. So, it is often called a “barometer of American economy;
- There are different sectors inside the index, which represent companies from familiar and particular sectors. According to numbers released on May 31, 2023 the smallest sector by market cap is Materials with a share of 2.4% (all numbers are given as of May 31, 2023), while the largest is Information technology with 28% of the index market cap. The index also lists companies from healthcare, financials, consumer discretionary, communication services, industrials, consumer staples, energy, utilities, and real estate. A sector breakdown allows investors to distinguish the best performing sectors and select the best performing stocks inside the sector. It also allows for the evaluation of economic performance of the United States in General and for a look at what is driving the American economy;
- The index is very sensitive to macroeconomic data, and positively reacts to rising GDP, retail sales, investments, and the phase in which houses are being built. Any negative news in these areas may push the index down. Macroeconomic data may have a sustainable effect on the index as declining GDP will put sustainable pressure on it, and vice versa;
- The index is very sensitive to the monetary policy decisions of the Federal Reserve (Fed). Rising interest rates and increasing borrowing costs result in less money in the economy and this leads to lower corporate margins, lower consumer and investment demand, and eventually to lower investments in stocks. So, the Fed’s hawkish stance usually results in a weaker S&P 500 index. A dovish monetary policy by the Fed usually supports the index. Thus, the Fed’s interest rate actions, testimonies of its head and FOMC voting members should be monitored;
- The Consumer Price Index (PCI) and the Personal Consumption Expenditures Price Index (PCE) data, which represent inflation, affect the index. If the numbers are far from the Fed’s target, which is set at 2%, it may signal to the possibility that the Fed may continue with its hawkish stance, meaning pressure on the S&P 500 index. Any increase of inflation means the pressure will rise. If inflation slows down to below the 2% target, it is likely to push the index up;
- The S&P 500 index is a risky asset as it represents the sentiment in the market, and the appetite for risk. A rising appetite for risk supports the index, while uncertainty, which lowers economy and geopolitical risks, put pressure on it;
- The index has a negative correlation with the USD/JPY as the Japanese Yen is regularly used for carry trading. So, a deteriorating Yen may signal to a decline of the index;
- The S&P 500 is a very popular asset for investments. An individual may invest in S&P futures, CFD’s of ETF’s that are linked to the index. This is a very diversified asset, and is suitable for conservative investors as it has lower volatility than any of its components, or even currencies or commodities. Thus, the index may serve as a hedge asset inside an investment portfolio;
- The index is linked to the U.S. stock market’s opening hours, but futures and CFD trading on the index continues mostly throughout 24/5, excluding weekends. So, the index may open with a gap if something very important has happened during a weekend.
| Ticker | US500 |
| Contract value | 10 USD x US500 Index |
| Maximum leverage | 1:100 |
| Date | Short Swap (%) | Long Swap (%) | No data |
|---|
| Minimum transaction volume | 0.01 lot |
| Maximum transaction volume | 100 lots |
| Hedging margin | 50% |
| USD Exposure | Max Leverage Applied | Floating Margin |
|---|
