SPYSPDR S&P 500 ETF Belief$541.78 -0.67 (-0.12%) (As of 02:10 PM 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 needed, however the coverage assertion and outlook have the S&P 500 NYSEARCA: SPY on monitor to hit new highs. Excessive inflation and excessive rates of interest apart, the US economic system is rising, labor markets are wholesome, and inflation is monitoring decrease, which has the Consumed monitor to chop charges. Within the eyes of the market, the assertion indicators 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 surroundings, however the index can proceed to climb increased. 
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Traders should bear 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 economic system, which is the place we’re at present. 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 might proceed to hike charges once more if essential to curb inflation.
Inflation is cooling; that’s a reality. The most recent 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 slicing charges too quickly will unleash the economic 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 will’t maintain them excessive eternally as a result of rising charges impression everybody’s borrowing prices, together with the US authorities. The Committee for a Accountable Federal Finances estimates {that a} 50 foundation level hike would enhance the finances deficit by $1 trillion and put the US getting ready to 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, rising the chance of default. On this surroundings, the Fed is left strolling a tightrope between fiscal coverage and financial accountability. Charges should keep excessive sufficient to fight inflation however low sufficient that US debt doesn’t spin wildly uncontrolled. 
The FOMC Stated Greater for Longer and Meant What It Stated
The Fed indicated it could lower charges this yr however trimmed the forecast from three cuts to 1. The most effective-case state of affairs is that this lower will come by November, however there may be threat. The tempo of inflation hasn’t slowed sufficient to warrant a fast tempo of price slicing, which suggests the Fed could solely lower 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, it is usually attainable there will likely be no lower this yr. As it’s, the CME FedWatch Instrument reveals the market pricing within the first lower 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 by 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 is going to proceed to rise. The technical motion following the Fed announcement was tepid however led to a major hole increased the following and is confirmed by purchase indicators in MACD and stochastic. 
There may be substantial potential within the S&P 500. The market is transferring increased 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 might 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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