The S&P 500 and Nasdaq 100 indices hit new all-time highs on Tuesday and are continuing to grow, fuelled by increasing confidence that the Fed will cut interest rates.
According to the latest estimates, the probability of a cut in September has risen to 96% from a low of 38% immediately after hawkish comments following the last FOMC meeting. The growing expectation that this will not be a one-off cut is fuelling longer-term stock growth. Markets are pricing in a 53% chance of three cuts and a 93% chance of two cuts by the end of the year, compared to 8% and 40% on 31 July. The increased likelihood of three cuts by the end of the year is likely to remain a fundamental driver of the broader stock market.
The Nasdaq100 is approaching 24,000, but thanks to the dip in early August, it is far from overbought. The long-term outlook is also quite ambitious, as the 26% sell-off in February-April was a 50% correction of the rise from the lows in October 2022. According to the Fibonacci extension, the long-term target for this momentum now looks to be the 30,000 area.
The S&P 500 has a similar long-term technical picture. The April lows were a 50% retracement of the October 2022-February 2025 rally. The ultimate target for the current momentum is the 7800 area, which the market could reach in 3-4 quarters from the current 6460.
It is also worth mentioning the remarkable dynamics of the Japanese market, where the Nikkei 225 has gained more than 9.5% since last Monday. The Japanese market is reflecting both the change in sentiment on the American markets and the growing expectations that the Bank of Japan’s rate hike keeps getting kicked down the road. The third pillar of growth is the falling prices for commodities and energy, which the Land of the Rising Sun imports in abundance.
Against this background, the Nikkei225 has updated the historical highs set just over a year ago, potentially heading towards 50,000 from the current 43,300.
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