Where we are: S&P 500 futures (ES) are grinding higher near the 5,475 level as the European cash session progresses, building on yesterday’s extension of a three-session rally. The overnight range has been tight but biased to the upside, keeping the index well above its 50-day moving average and within striking distance of psychological resistance at 5,500. This constructive price action follows a strong cash close where the Dow notched record highs, though some intraday profit-taking in mega-cap tech limited the broader index’s momentum. We expect the market to hold these gains ahead of the New York open, with 5,450 acting as immediate intraday support.
What’s driving it: Domestic policy expectations are the primary anchor for this equity bid, with the market pricing in a highly probable Fed hold at tomorrow’s FOMC meeting as Treasury yields ease back from recent highs. US 10-year yields have moderated to 4.48%, softening pro-inflationary anxieties and providing a supportive valuation backdrop for equities ahead of Chairman Warsh’s first policy meeting. This interest rate relief is amplified by a massive geopolitical shift, as the announced US-Iran deal to reopen the Strait of Hormuz lowers risk premiums and crushes volatility, with the VIX dropping over 8% to 16.2. Despite some rotation out of mega-cap tech like Microsoft and Alphabet, the broader index is supported by M&A excitement after SpaceX’s $60 billion acquisition of Cursor.
- Speculator positioning is in an extreme 6th percentile net short (-194,554 contracts), creating a massive short-squeeze risk on any positive geopolitical or macro development.
- US 10-year real yields (TIPS) at 2.17% and the 2s10s spread steepening to 0.4% suggest the market is adjusting to a higher real rate regime, but one that is offset by the easing of the energy-driven inflation tax.
- Huge dispersion under the hood is being driven by SpaceX’s 8% post-IPO surge on its Cursor acquisition, forcing a sharp rotation out of traditional mega-caps into broader industrial and cyclical names.
NY session focus: All eyes are on the US macro data release at 08:30 ET, where any sign of economic resilience will reinforce the soft-landing narrative and catalyze a break above the 5,500 resistance level. The momentum trade of buying ES on dips towards 5,450 remains highly profitable, whereas fighting this geopolitical squeeze by shorting the index is an incredibly high-risk endeavor. A hawkish surprise from tomorrow’s Fed meeting is the main risk to this rally, but today the path of least resistance is higher. The ultimate pain trade is a violent run of stops above 5,520 as the massive pool of off-side speculative shorts is forced to capitulate.