The stock market initially dropped following a hawkish decision by the Fed but recovered as Meta and Microsoft reported strong earnings. S&P 500 gains have been helped by a lack of negative influences and improving economic data post-tariff weakness in Q1. Recent employment and inflation reports have also been positive, with strong job data not accompanied by excessive wage growth.

The Fed’s decision kept interest rates unchanged with some votes for a cut, but the omission of uncertainty diminishing was less dovish than anticipated. The market reacted more to Fed Chair Powell’s Press Conference, where he avoided indicating a future rate cut and maintained a neutral stance, leading to a brief market dip that was negated by strong corporate earnings. The focus remains on incoming data to guide market expectations, with potential for corrections if hawkish data emerges.

SP 500 Technical Analysis

S&P 500 technical analysis reveals persistent highs due to limited bearish catalysts, defining a “chasers” market. Risks and rewards for buyers are best around the 6,200 support level, while sellers await a downturn towards 5,800. On shorter timeframes, current trends remain upward, driven by strong earnings, but not sustained long-term unless macro indicators shift. Upcoming US data releases could influence market directions, with important indexes and employment figures to be revealed.

The Federal Reserve’s cautious stance created some temporary weakness, but powerful earnings reports from Microsoft and Meta have pushed the S&P 500 to new highs near 6,450. This shows that for now, strong corporate performance is more important to the market than central bank policy. The focus for traders in the coming weeks will be on whether economic data can support this rally.

Data is now the most important factor, as the Fed is simply reacting to new information. This morning’s Core PCE inflation number for June came in at a stubborn 2.8% year-over-year, while initial jobless claims were a low 215,000, signaling a tight labor market. These figures make it unlikely the Fed will consider cutting rates soon and could lead to market choppiness.

Market Momentum Strategy

For now, we are in a market where traders are chasing gains, pushing the index higher with every small dip. The CBOE Volatility Index, or VIX, is currently trading near 13, which is a historically low level indicating very little fear among investors. This complacency can be risky, but it also means the upward trend is the path of least resistance.

Traders looking to ride this momentum should watch for pullbacks to the upward trendline around the 6,300 level. This area provides a clear support level to buy call options or sell put spreads, offering a defined risk for positioning for another move higher. We will be looking for buyers to step in and defend this trendline if the market dips.

The main risk is that strong economic data, like tomorrow’s NFP jobs report, could spook the market into expecting a more hawkish Fed for longer. A break below the 6,300 support could trigger a faster move down towards the 6,200 level. Prudent traders may consider buying some cheap put options as a hedge against this possibility.

We have seen this pattern before, such as during the market action in 2023, when stocks initially struggled with a firm Fed stance before eventually climbing higher. As long as economic growth doesn’t suddenly collapse, the long-term path for stocks should remain positive. The Fed’s position of either holding rates steady or eventually cutting provides an underlying support for the market.

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