S&P 500 Forecast: SPX rises ahead of the Fed's rate decision

US futures

Dow future 0.1% at 41648

S&P futures 0.1% at 5641

Nasdaq futures 0.15% at 19460

In Europe

FTSE -0.6% at 8266

Dax 0.02% at 18734

• Stocks rise on Fed rate cut optimism
• S&P 500 rises for an 8^th straight day
• The market favours a 50 bps cut
• Oil falls after 3-days of gains

S&P 500 extends gains for an 8^th day

U.S. stocks are rising moderately after a mixed close yesterday and ahead of tonight's Federal Reserve interest rate decision. The US Central Bank is set to start cutting interest rates and is likely to signal a start to an easing cycle, which could see the Fed reduce rates by 100 basis points by the end of the year.

The market remains undecided about whether the Fed will cut by 50 basis points or 25 basis points when it lowers borrowing costs from the 22-year high of 5.25%—5.5%.

 According to the CME Fed watch tool, investors are pricing in a 63% likelihood of a larger cut. While an outsized rate cut could support risk assets, this only holds true while the market isn’t panicking about a hard landing. Here, Fed Chair Powell’s comments could be key in setting the tone.

Given the uncertainty surrounding expectations, the Fed will need to be clear when justifying its move or risk spooking the market and fueling recession fears. This is especially the case if the Fed goes big to show that it is not a panic move by a Fed behind the curve.

Corporate news

General Mills, the Cheerio maker, falls after posting a fall in quarterly sales but said that it expects volumes to improve in fiscal 2025.

S&P 500 forecast – technical analysis.

The S&P 500 is set to rise for an 8^th straight day after reaching a record high yesterday at 5671. A rise above here brings 5700 as the next logical level. Support can be seen at 5545, the early August low. Below here, the 50 SMA at 5520 comes into play.

FX markets – USD falls, GBP/USD rises

USD is falling ahead of the Federal Reserve interest rate decision. The U.S. dollar is giving back gains from yesterday after stronger-than-expected US retail sales.

EUR/USD is edging higher after the euro capitalizes on a weaker U.S. dollar despite a downward revision to eurozone inflation data. Eurozone inflation rose 2.2% YoY in August, but on a monthly basis, CPI registered 0.1% growth, down from 0.2% initially expected.

GBP/USD is rising after UK inflation data. UK CPI remained unchanged at 2.2% YoY in August, which aligns with forecasts; however, the service sector and core inflation were hotter than expected. The data reinforces expectations that the Bank of England will leave interest rates unchanged at the meeting tomorrow. The market is still pricing in a 25 basis point rate cut for November.

Oil falls, snapping a 3-day winning run.

Oil prices are falling, snapping a three-day winning run after data showed increasing oil inventories. This offset supply concerns amid rising tensions in the Middle East.

According to the American Petroleum Institute, US crude stockpiles rose by 1.96 million barrels in the week ending September 13^th, while gasoline inventories also increased. Now that we’ve come to the end of the US driving sentiment, a shift in sentiment is playing out.

Concerns surrounding the ongoing conflict in the Middle East, which still poses a supply risk, limited the losses.

The mood is also cautious ahead of today's Federal Reserve interest rate decision. The Fed is expected to cut rates for the first time in four years.