S&P 500 Index
- By date
- Metadoro first
The Federal Reserve can now clearly burn itself the looming victory over inflation into an asset. The recent data by the U.S. Bureau of Labor Statistics’ on CPI (consumer price index) contains its annual indication at 2.7% on August 12, which matches its level in June exactly. Wall Street expert estimates suggested some faster pace of 2.8%. On a monthly basis, the CPI only rose by a modest 0.2%, which was slower than 0.3% in June. Thus, month-on-month inflationary pressure for the end consumer, if we multiply this 0.2% rate by 12 months, does not go beyond 2.4% in total. This level of 2.4% already corresponds to the annual figure shown during a three-month period from April to June, and apparently, the CPI statistics will return to this 2.4% station soon.
The S&P 500 immediately soared by 0.85% to touch and retest its historical highs' area above 6,430 to keep the mid-term rally stage in play. The tech-heavy NASDAQ Composite already surpassed its all-time high by 150 points in the first half hour to follow the CPI release. It is now set above 21,600, and is unlikely to be stopped somewhere on the way to its first power point of 22,000. That corresponds to 23,775 for the USTech100, a select index for a group of largest companies on Nasdaq, keeping 25,000 and then 27,500 further in mind. The U.S. Dollar Index against a basket of other reserve currencies has acquired a very distinct negative momentum, so far limited within a 0.5% slide, but more speculative deals until the end of August may promise more profit in the bearish bet here for the Greenback short-term. A test of at least 95.50 support for USD seems inevitable over time as well as the continuing Wall Street climb. The extension of no extra tariff trade pass for China by U.S. president Trump for another 90 days will add much to the bullish pattern for stocks.
A 73,000 jobs in the Nonfarm payroll report on August 1, with as much as 258,000 downward revision to June and July numbers already led to a nearly 80% bets for the Fed's rate cut two times in a row, in September and December. If we take into consideration today's weak CPI data, then the coming Fed's gathering on September 17. CME FedWatch tool shows this chance is approaching 95%. The market also estimates the chance of a bold 0.5% reduction in borrowing costs by December at only 40%, while more than 50% of traders expect a 0.75% rate cut. In fact, this means either two cuts of 0.25%, or one of 0.25% plus one of 0.5%. The second scenario sounds extreme, however. Anyway, the Fed has nowhere else to go. They will simply have to bite the bullet and cut rates, otherwise they will be the ones to blame for the slowdown in the economy or for the stock market fall which could be provoked if the regulator's steps would not match at all the crowd's expectations which are clearly formed. Again, any future heads of the Fed to replace Jerome Powell are unlikely to want to ruin their odds by voting against rate cuts while waiting for a possible appointment next spring.
Fed's chair Jerome Powell and his colleagues will, of course, say that they achieved this by keeping interest rates high to keep price pressure in check, even though inflation has been more likely restricted due to natural economic causes as well as slowing consumer spending. The Fed will now have a harder time in terms of further insisting on elevated rates drug for the imaginary economic stability, since the central bankers' endlessly vocal worries that Trump's tariff wars might fuel inflation have proven unfounded. While they won't admit it, they will stand there in anti-inflation victory laps whether they are its architects or not. In the end, the reason for Fed's future actions is not so important. What actually matters is only that the already stagnating or probably even cooling labour market, now combined with declining consumer price indicators, give them reason to launch the rate cut cycle with their heads held high. The Fed's new dovish stance could be carved in granite as early as the Jackson Hole policy symposium, scheduled on August 21-23.
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 |
|---|
