S&P 500 rally faces key test before Fed meeting

The S&P 500 Index (SPX) is hanging out near record highs, riding the wave of the widespread belief that the Federal Reserve (Fed) will cut interest rates this week. With the odds priced in at around 90%, such an expectation is the fuel in the tank for the current rally in the near run. 

However, there are cracks in the foundation, and they are quite loaded. The bond market is sending up a flare: long-term yields are now climbing, even though the US regulator is hitting the brakes and maintaining monetary easing. Investors are losing sleep over this red flag, particularly given persistent inflation risks and resilient government debt, showing that traders and the central bank might be on different pages.

This sky-high optimism is a double-edged sword, as the trend could reverse. Once every market player is on board and goes long, there are no buyers left to jump on the bandwagon. The economy isn't pulling its weight either, with consumer spending running out of steam and wage growth stuck in neutral. All of these fundamentals are like building blocks, and they are still shaky.

The Fed meeting on December 10 could be the trigger for a new sell-off. A rate cut is old news, so all eyes will be on its Chairman, Jerome Powell. If he strikes a cautious tone or the Federal Open Market Committee (FOMC) vote isn't unanimous, it will be a cold shower for the public, causing investors to flee risky assets.

Technically, the SPX uptrend on the chart is still intact, but it is beginning to look tired. The Stochastic Indicator (%K=73, %D=68) is flirting with overbought levels, and the Chaikin Oscillator is sounding the alarm with a bearish divergence—it's losing steam while prices rise, a classic sign that underlying buying power is waning. Therefore, a breather or a pullback seems to be in the cards in the short term.

Keep in mind the following plan for your trading:

Sell the S&P 500 Index before the Fed rate decision, in case market players wish to secure their financial gains. Take profit: $6,690. Stop loss: $7,010.

This forecast is valid from December 8 till December 15, 2025.