The S&P 500 Indicator has now marked its 13th consecutive green week, as the market continues its strong advance. Last week’s breakout above the 6,350 level triggered a new upward leg, with 6,500 emerging as an increasingly realistic target. This bullish momentum is supported by a notable decline in volatility, including in the MOVE Index, as 30-year bond yields retreat from the psychologically critical 5% threshold. Shorter-dated Treasury yields remain significantly lower, reflecting market expectations of eventual Fed rate cuts.
Yet, the fundamental question remains: Will the Fed yield to political pressure despite persistent inflation and a robust labor market? While the central bank sets short-term rates, Treasury yields are determined by the market—through supply and demand. A rate cut indirectly boosts bond demand, as increased liquidity often finds its way into Treasuries. However, current market pricing suggests no cut at the July 30 FOMC meeting, with just two cuts priced in for the remainder of 2025—likely in September and December. A surprise cut next week would undoubtedly trigger a bullish reaction.
The primary goal of lowering the key interest rate is to stimulate economic activity. Lower borrowing costs encourage spending and investment, reduce the incentive to save, and thereby support risk assets like equities. Over time, this can result in higher inflation. Rate cuts also tend to weaken the domestic currency, making exports more competitive. However, the downside includes pressure on bank margins and the risk that rate cuts may be ineffective if confidence is lacking.
Next week will be data-heavy, adding further tension to market expectations:
• Labor market: JOLTS (Tuesday), Nonfarm Payrolls & Unemployment Rate (Friday) • Inflation: PCE & PMI (Thursday) • Macro: GDP and home sales (Wednesday) • Revisions of prior reports • Earnings: Key players such as Apple, Amazon, Meta, Visa, Mastercard, PayPal, ExxonMobil, Chevron, Ford, and Qualcomm
Despite the strong technical setup, these upcoming events could reignite volatility, especially as seasonality in August tends to be neutral-to-negative. Risk appetite among retail investors is reaching euphoric levels, as reflected in record-high margin debt. Technically, the S&P 500 shows no major weakness yet, but there are early warning signs: tech sector underperformance, rotation into defensives, and divergence in market breadth indicators. Meanwhile, precious metals like gold and silver are gaining momentum, signaling increased hedging activity.
In short, while everyone is chasing upside with aggressive call positioning, puts are now unusually cheap—and may soon prove valuable.