SPYSPDR S&P 500 ETF Belief$540.52 -1.93 (-0.36%) (As of 10:14 AM ET)52-Week Vary$409.21▼$544.12Dividend Yield1.24percentAssets Underneath Administration$534.90 billion
The Federal Open Market Committee (FOMC) didn’t precisely give the market what it wished, however the coverage assertion and outlook have the S&P 500 NYSEARCA: SPY on observe to hit new highs. Excessive inflation and excessive rates of interest apart, the US financial system is rising, labor markets are wholesome, and inflation is monitoring decrease, which has the Ate up observe to chop charges. Within the eyes of the market, the assertion alerts a pivot in coverage that ought to spur financial exercise and S&P 500 earnings progress. Excessive inflation and rates of interest are a fear on this setting, however the index can proceed to climb larger. 
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Traders should keep in mind the place it got here from to maintain the present Fed coverage in perspective. FOMC coverage had been ultra-lenient for over a decade till early 2025, when the committee started its tightening cycle. On the time, the decision was to “normalize” rates of interest and the financial system, which is the place we’re in the present day. Traditionally, FOMC coverage averages between 4% and 10%, which places the present coverage within the low-end vary. On this state of affairs, the FOMC may proceed to hike charges once more if essential to curb inflation.
Inflation is cooling; that’s a reality. The newest CPI report aligns with an outlook that inflation will cool to the FOMC goal of two% by 2026. The issue for the FOMC is that inflation is cooling ever so slowly, leaving them little selection however to maintain charges the place they’re. Because it has been all alongside, the chance for them is that chopping charges too quickly will unleash the financial system and spur inflation to new heights. The housing market alone has sufficient pent-up demand to maintain financial progress and shopper costs.
Among the many Fed’s issues is rates of interest. They’ll’t maintain them excessive ceaselessly as a result of rising charges influence everybody’s borrowing prices, together with the US authorities. The Committee for a Accountable Federal Price range estimates {that a} 50 foundation level hike would enhance the finances deficit by $1 trillion and put the US on the point of default. 
The CBO estimates that credit score prices will run practically $850 billion this yr alone and double within the subsequent decade because of the deficit and excessive charges, growing the chance of default. On this setting, the Fed is left strolling a tightrope between fiscal coverage and financial duty. Charges should keep excessive sufficient to fight inflation however low sufficient that US debt doesn’t spin wildly uncontrolled. 
The FOMC Stated Increased for Longer and Meant What It Stated
The Fed indicated it could reduce charges this yr however trimmed the forecast from three cuts to 1. The perfect-case state of affairs is that this reduce will come by November, however there may be threat. The tempo of inflation hasn’t slowed sufficient to warrant a speedy tempo of charge chopping, which implies the Fed could solely reduce as soon as after which sit again to see what occurs. As a result of the tempo of inflation isn’t slowing shortly and the Fed is infamous for strolling again on its outlook, additionally it is attainable there will likely be no reduce this yr. As it’s, the CME FedWatch Instrument reveals the market pricing within the first reduce for November. 
The outlook for earnings is what’s driving the market. The consensus estimates that S&P 500 earnings progress will speed up sequentially via the top of the yr and that annual progress will speed up from this yr to the following. This outlook reveals that the S&P 500 is in rally mode, and it appears to be like like it’s going to proceed to rise. The technical motion following the Fed announcement was tepid however led to a big hole larger the following and is confirmed by purchase alerts in MACD and stochastic. 
There may be substantial potential within the S&P 500. The market is transferring larger after breaking out of a secular grade buying and selling vary with a magnitude of practically 1,300 factors. As a result of the transfer to new highs is pushed by earnings progress, earnings progress acceleration, and a forecast for the development to proceed, it may simply transfer above the breakout level by the precise determine. This places a goal of SPX 6,100, which can be reached by the top of the yr. 
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