S&P 500 Index
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- Metadoro first
For me, it doesn’t matter at all, if the Fed’s rate cut cycle would actually start with a small 0.25% or a double 0.5% move this Wednesday’s night. The ratio of 0.25% supporters versus 0.5% adepts is changing rapidly, while Jerry the Hatter with his Tweedledees and Tweedledums are approaching faster to their appointed Mad Tea-Party. However, the after-party trajectory and economic foundations are much more important, than a precise Sept 18 temperature of their tea.
Indeed, FedWatch Tool today shows that only 7% of futures traders on CME believe in three consecutive 0.25% steps before the end of the year. Meanwhile, more than 40% are betting for a 1.25% rate cut in total at September, November plus December meetings, as nearly 20% (a giant number in this context) supports the idea of moving the current rate range of 5.25%-5.50% to 3.75%-4.00%. A 1.5% difference is the way which could be related mentally only with an emergency case like sharp jumps in unemployment or much deeper decrease of ISM services activity index, which now looks so high and safe at this height.
Well, the S&P 500 broad barometer of Wall Street is now an inch away from its 5,650 launching pad for more strength. But the majority of a bullish camp is seemingly a sort of positive doomsters, always and secretly or openly believing in a worse scenario but seeking for cheaper money to invest in market giants. An easy thing to understand, based on objective FedWatch data patterns. And no more strange, as the crowd is following such a scenario of protecting money from troubles for many months.
Is it a realistic approach? As a matter of facts, again, the National Federation of Independent Business (NFIB) just said a week ago, 37% of small enterprises in the U.S. faced historically low levels of income because of too high costs on personnel, materials, energy, lower volumes of physical sales and elevated interest rates altogether. This is even more than 35% of sufferers at the pandemic bottom in 2020. A clear evidence of non-O.K. scenario, which is perfect for the market’s growth, if this belief is based on large and quick rate cut hopes, isn’t it?
The only thing here that I personally do not believe in a 0.5%+0.5%+0.5%=1,5% path of the Fed. Therefore, I would not bet even a penny for this brave version. However, I am ready to bet a few pounds on further climbing of the S&P 500 to new peaks like 5,850 or even higher. And if you ask me why, my answer would be that I believe in the Fed’s Hatter Jerry Powell’s capacity to take more thick and poker-faced rabbits from his Mad Hat. They will feed us with their “soft landing” fairy tales, which would be far from reality, but will please the other camp of O.K.-scenario betters, led by big fund guys from The Bank of America, City etc. Thus, the “ultra-left” wing of recession believers who are betting for a 1.5% rate cut before Christmas time comes, and the “right” wing of “soft-landers”, will join together in their efforts to push the Wall Street higher and to bring me money. If you now ask for my opinion, then now I agree with both sides, ha-ha ))) as both of them are going to make me more or less relaxed two or three months with my bullish stakes on giant stocks, ETFs and indexes. And so, I love those good people from both camps with all sincerity of my independent heart.
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 |
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Minimum transaction volume | 0.01 lot |
Maximum transaction volume | 100 lots |
Hedging margin | 50% |
USD Exposure | Max Leverage Applied | Floating Margin |
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