FOMC Preview: 25 bps Cut to Add Fuel to the Wall Street Rally?

• Markets anticipate a 25 bps rate cut, but the focus remains on Fed projections.
• Trump’s victory sparks market rally, Will the FOMC meeting add fuel to the rally?
• S&P 500 technical analysis hints at further upside toward the 6170 handle.

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The FOMC meeting today has taken a somewhat back seat to the US election this week. Of course that was to be expected, but markets do appear to have settled following the return to the White House for Donal Trump. 

It appears attention may be shifting to the FOMC meeting today, even though a 25 bps rate cut is all but assured. Market participants have already repriced their expectation for rate cuts from December moving forward. Markets began pricing in less rate cuts following the election as concerns over tariffs and their potential impact on inflation became a possibility. 

As things stand markets are still pricing in around a 66% chance of a 25 bps cut in December, which is down from the 77% prior to the election results. 

Source: CME FedWatch Tool (click to enlarge)

US Election to Impact Fed Decisions Moving Forward?

Donald Trump is set to begin his term as the 47th President of the United States on January 20. The Federal Reserve will have today’s meeting and the December 18 meeting before Trump assumes office. The January 29 meeting may also come too soon for any change in fed policy in my opinion solely because any move like tariffs would take a while to be felt by the economy. The Fed will only make a move based on what the data shows them. 

In the lead up to the election, Fed officials said that they don’t change monetary policy based on government proposals. Instead, they focus on the economic effects of those decisions and respond accordingly.

A Trump Presidency has so far resulted in a rally for Wall Street Indexes propelling them to fresh highs. The US Dollar Index (DXY) at its highs was up around 2% on the day and enjoyed its biggest single day rally since sometime in 2016.

The Fed cut today may not be enough to derail the DXY rally but may add further fuel to the rally in Wall Street Indexes. Barring a hawkish message from Trump I do believe that US Indexes may continue to move higher which is an ominous sign given that the usual Santa Rally has yet to even begin. Will the S&P 500 breach the 6000 handle after the FOMC release?

Technical Analysis

From a technical standpoint, The S&P is still on course to complete its move to target following the long-term triangle pattern breakout which took place on September 19. The first target after the breakout was the 5910 handle which was finally hit yesterday. 

The next target lies above the 6000 mark at 6170, which could be hit in the weeks ahead as markets expect the usual ‘santa rally’.  There is however the possibility of a pullback based on the technical as the RSI is approaching overbought territory. 

The FOMC meeting could help push the index above the 6000 handle before we get a pullback and then continue toward the 6170 target. This would be the ideal scenario but then again markets do not always play out as expected.

Immediate resistance rests at the psychological 6000 handle before the 6170 mark becomes the area of focus. 

Conversely, a move lower from here must navigate support at 5910 before the swing high at 5870 and support at 5757 comes into focus. 

S&P 500 Daily Chart, November 7, 2024

Source: TradingView.com (click to enlarge)

Support

• 5910
• 5870
• 5757

Resistance

• 6000
• 6170
• 6250

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