The odds of another Federal Reserve (Fed) interest rate cut in December are fading fast. Swap traders are now seeing only a 50/50 chance, down sharply from 72% last week. This shift comes as regulatory officials sound more hesitant to ease monetary policy again, and that's exactly what's spooking the market and making the S&P 500 Index (SPX) edge lower.
In fact, the pain has been most acute in growth stocks and shares popular with retail investors, which just posted their largest single-day drop since April. Even the high-flying AI sector, a major driver of the rally earlier this year, has started to tumble in recent weeks. Market players are getting worried about overstretched valuations and the enormous capital expenditure these companies require, leading many to finally take profits. The risk-off mood is particularly evident among retail traders—according to Barclays' Euphoria Index, their activity has fallen off a cliff.
Several American policymakers echoed this cautious tone. St. Louis Fed Chairman Alberto Musalem argued for patience, citing inflation that is still above the 2% target. Minneapolis Fed President Neel Kashkari told Bloomberg News he did not support the central bank's latest rate cut and is still undecided on the best move for December. Adding to the hawkish sentiment, Cleveland Fed Chair Beth Hammack stated that monetary policy should remain "fairly restrictive."
If this negative sentiment keeps up, the S&P 500 Index could be testing the $6,650 level very soon.
The ultimate recommendation is to sell SPX. Lock in profits at $6,650. Place Stop Loss at $6,800.
Calculate your open position so that a potential loss (protected by a Stop Loss order) is limited to 1% of your deposit. If your account balance does not allow entering a position of this size, it is better to skip the trade and wait for other market signals that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
