Wall Street Bets on Rate Cuts: Can the S&P 500 Break to New Highs? Inflation Data and Powell's Speech Analysis

Slowing Inflation and Powell's Speech: Rate Cut Expectations Heat Up Again

Recent inflation data showed that the core U.S. CPI year-over-year increase has further moderated. Although still above the Fed's 2% target, the slowing trend has become more pronounced. Following this data release, market expectations for the Fed to begin rate cuts within the year have significantly strengthened. In a subsequent public speech, Fed Chair Jerome Powell reiterated that the policy rate may be near the peak of the current tightening cycle and emphasized that future decisions will be data-dependent. While Powell did not provide a specific timeline for rate cuts, his tone was interpreted by the market as dovish, further solidifying rate cut expectations. According to the CME FedWatch Tool, the probability of a rate cut in June has risen to a relatively high level.

How Rate Cut Expectations Drive the Three Major U.S. Stock Indexes

The rise in rate cut expectations has directly boosted the three major U.S. stock indexes. Generally, rate cuts lower corporate financing costs, improve future earnings expectations, and reduce the risk-free rate, prompting capital to flow from bond markets to equities. Recently, the tech-heavy Nasdaq Composite has performed particularly strongly, as growth companies are more sensitive to interest rate changes. The S&P 500 has also benefited, with interest-rate-sensitive sectors like financials and real estate attracting capital. The Dow Jones Industrial Average has been supported by industrial and consumer stocks, showing a broad-based rally. According to market analysis, capital flow data indicates that U.S. stock funds have seen significant net inflows over the past week, reflecting a rebound in investor risk appetite.

S&P 500's Technical Resistance Levels and Capital Flows

From a technical perspective, after its recent rebound, the S&P 500 is approaching its all-time high zone. This area has repeatedly acted as resistance in late 2023 and early 2024, creating a dual psychological and technical pressure point. Some technical analysts point out that the index needs to break through this resistance level with increased volume to confirm a new upward trend. If it fails to break through, it could trigger short-term profit-taking. In terms of capital flows, according to EPFR Global data, large-cap funds have dominated recent inflows into U.S. stocks, while inflows into small- and mid-cap funds have been more moderate, indicating that capital still prefers blue-chip stocks with higher certainty. Meanwhile, options market data shows an increase in call option open interest, but implied volatility has not risen significantly, suggesting the market is cautiously optimistic about a breakout.

Can the All-Time High Be Broken? A Mix of Bullish and Bearish Factors

Whether the S&P 500 can break its all-time high depends on multiple factors. On the positive side, if rate cut expectations continue to materialize, they will support corporate earnings and attract more capital inflows. Additionally, the investment boom in technology areas like artificial intelligence has boosted overall market valuations. On the negative side, if inflation data reverses, it could delay rate cuts and dampen market sentiment. At the same time, geopolitical risks and the upcoming U.S. presidential election add uncertainty to the market. Overall, most Wall Street institutions believe that before the rate cut cycle begins, the index may maintain high-level volatility, but if inflation data continues to improve, breaking the all-time high is only a matter of time.

Risk Warning

The above content is for reference only and does not constitute investment advice. Markets are risky, and investment should be made with caution. The views, analyses, and forecasts in this article are based on public information, and their accuracy or completeness is not guaranteed. Investors should make independent investment decisions based on their own risk tolerance.