Where we are: S&P 500 futures are clawing back yesterday’s losses, trading up 0.5% as Wall Street attempts to shake off the FOMC’s hawkish sting. The index has stabilised after yesterday’s late-session wash-out, which saw the cash market plunge from its intraday record high following the Fed’s projection of potential further tightening. Overnight action has established a solid base above the key technical floor of 5,400, setting up a test of the 5,450 level as US pre-market trading accelerates. This morning’s bid retraces more than half of the post-Fed drop, signaling that the underlying buy-the-dip regime remains intact.
What’s driving it: The primary driver is the market’s rapid digestion of yesterday’s FOMC statement and economic projections under new Chairman Kevin Warsh. While half of the committee projected that at least one more rate hike would be appropriate this year, equity bulls are finding comfort in falling US Treasury yields, with the 10-year yield dropping 4 basis points to 4.43% and real yields easing to 2.14%. This yield decline, alongside a 4.48% plunge in WTI crude to 84.65 after President Trump signed an energy-inflation-mitigating memorandum of understanding with Iran, has offset hawkish policy anxieties. Furthermore, the micro narrative is dominated by a powerful chipmaker rally, led by Intel’s 10% surge on an Apple deal, which is pulling the broader index higher.
- The hawkish FOMC shift under Kevin Warsh, where 50% of policymakers still signal another rate hike, is being countered by falling US 10-year yields to 4.43% and 10-year real yields to 2.14%.
- Sector-specific tailwinds are dominated by Intel’s 10% surge on an Apple chip deal, which has reignited the broader semiconductor sector and lifted Nasdaq 100 futures by 2%.
- CFTC speculator positioning shows net non-commercial contracts at a heavily crowded short of -194,554 (6th percentile of the 52-week range), presenting a massive squeeze risk on any positive economic data.
NY session focus: All eyes are on the 08:30 ET double-header of Philly Fed Manufacturing (forecast 9.8) and Unemployment Claims (forecast 225K), which will test the resilience of this morning’s bid. A soft claims print combined with stable manufacturing data is primed to trigger a massive short-covering rally given the heavily skewed net-short positioning. The trade that is working is long technology and chip producers ahead of Micron’s earnings next week, while the trade at risk is chasing defensive value plays like Accenture, which is sliding pre-market on weak outlook guidance. The absolute pain trade for the session is a rapid squeeze back toward S&P 500 record highs, forcing the deeply entrenched speculative shorts to capitulate.