Looking to the Futures

On a highly anticipated Federal Reserve decision day, S&P 500 Futures (/ESZ25) climbed +0.65%, settling at 6891.75 after the Fed announced a 25-basis-point rate cut on Wednesday. This cut marked the third rate reduction this year but came with mixed opinions, with a final vote of 9-3 in favor of. Two Fed members dissented for no reductions and one who wanted more, dissenting for a 50-basis-point cut. The release of the Fed's revised "dot plot" revealed that as of now, their intent is to cut just one more time next year. With a new Fed chair scheduled to be appointed in the middle of next year, this could very well remain a fluid situation. When summarizing the Fed's economic projections, they anticipate stronger growth, no change to the unemployment rate, and lower inflation estimates compared to their previous September projections. Real GDP for 2025 was revised up to 1.7% from 1.6% and the Fed indicated much stronger GDP growth in 2026, revising their previous projection of 1.8% to 2.3%. Although lower revisions to headline and core inflation estimates, the Fed expects it to continue to stay above their 2% target through 2027. Amidst all the economic uncertainty and pressures from tariffs and global conflicts this year, inflation has remained relatively in check, allowing the Fed to continue their rate cut cycle on Wednesday with continued concerns of a weakening labor market. 

Along with the 25-basis-point cut the Fed delivered, they also announced that it will begin monthly purchases of $40 billion in short-dated Treasury bills starting December 9th. This announcement sparked speculation that the Fed may be beginning to shift from a quantitative tightening policy that started in 2022 to a more quantitative easing mode. Fed chairman Jerome Powell stated that these purchases are being made to maintain an ample level of reserves in the financial system and clarified that these purchases are intended for reserve management purposes rather than a full deployment of a quantitative easing policy. Although making it clear this is not QE, this move signaled that the Fed could be moving more in that direction. 

As indexes were moving up, U.S. Treasury yields moved lower after the rate decision with the benchmark 10-year yield falling more than 3 basis points to 4.153%, the 30-year yield declining more than 1 basis point to 4.795%, and the 2-year Treasury yield slipping more than 7 basis points to 3.542%. The U.S. Dollar Index ($DXY) fell -0.68% on the day and settled at 98.555 post Fed announcement. The U.S. Dollar Index is a very important financial tool that measures the value of the U.S. dollar relative to a basket of 6 key foreign currencies that are considered to be our most significant trading partners. Despite the Fed's current prediction of just 1 rate cut next year, the weakening dollar and fall in Treasury yields suggested that investors remain hopeful on multiple cuts next year as the rate futures market still priced in two for 2026. 

With just 3 weeks left in the year, traders will be intently watching to see if the less hawkish outcome than initially feared by the Fed on Wednesday will be enough to fuel a "Santa Rally" into the new year. With more releases from other key central banks, November CPI data, and employment reports to come over the next couple weeks, the market will not be taking any days off despite the coming holidays. 
 

Looking at the daily chart for /ESZ25, prices remained above the 20 and 50-day Simple Moving Averages since crossing back above them late November and continued to stay well above the 100 and 200-day SMAs as well. The 14-day RSI closed at 59.3018 signaling mildly bullish momentum and not yet being in overbought territory. Volume was elevated on Wednesday compared to the past few sessions but remained below the 50 day volume average. According to the Daily Hightower Report, /ESZ25 may experience support at the 6850.88 and 6802.19 levels and resistance at the 6928.12 and 6956.68 levels. 

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