S&P 500 futures had been up a strong 0.35% this morning earlier than the opening bell in New York, after the index added 0.88% in its Friday session. The Christmas week is—clearly—typically a quiet one with skinny buying and selling and low volatility. Merchants are centered extra on positioning for 2026 than they’re on the week forward and thus far they seem to love what they’re seeing within the yr forward.
We could even see a brand new all-time excessive—the S&P is simply lower than 1% from its earlier file peak.
Two huge causes for which can be the Fed and President Trump.
Most just lately, the U.S. Federal Reserve delivered a lower in rates of interest of 25 foundation factors, bringing the bottom price down to three.5%. Cheaper borrowing prices often end in more cash flowing into equities. Merchants usually are not anticipating one other rate of interest lower in January however 46% of them at the moment are pricing in a single for March, in keeping with CME FedWatch software, which tracks bets on fed funds futures. That quantity has been ticking up steadily all month.
The Fed has additionally begun one other program that provides liquidity to the market: Its month-to-month Reserve Administration Purchases (RMPs), every price $40 billion. The aim of this system is to offer extra every day liquidity for banks borrowing within the “repo” market. Banks typically borrow cash in a single day to fund their operations however rates of interest had just lately grow to be extra risky than they’re supposed be, so the Fed is lubricating that market with month-to-month purchases of short-dated T-bills.
It’s not supposed to be a brand new spherical of “quantitative easing,” however so far as some on Wall Road are involved it’d as properly be—and that’s prone to be good for shares.
“Over the past 2 weeks, the Fed’s balance sheet has grown by $21.1b using Reserve Management Purchases (RMPs), with the stated intent of keeping repo and related markets operating smoothly,” Piper Sandler’s Chief World Economist Nancy Lazar instructed purchasers over the weekend. “The Fed emphatically says this is not Quantitative Easing. Nonetheless, from an eco-perspective, the added banking reserves will help keep short rates lower, helping support M2 and bank loan growth.”
Placing all this collectively, an increasing Fed stability sheet will additional enhance [the money supply] and financial institution loans, in flip supporting nominal GDP progress, which is already wholesome at ~5%.”
At Wells Fargo, Ohsung Kwon and his colleagues see it a lot the identical method. New cash means purchase the dips once they happen, they advisable to purchasers final week. “We expect a sharp rebound in our Liquidity Indicator as the Fed expands its balance sheet by $40B/mo. Historically, dips were buying opportunities in a liquidity upcycle, a simple strategy of buying SPX at the close on 1%+ drop days and selling at the close the next day, largely followed the liquidity regime. With liquidity entering a mini upcycle, we believe equity dips will become buying opportunities,” they stated.
After which there may be what Axios has labelled President Trump’s “cash bazooka”: a $1,776 “warrior dividend” for members of the navy, billions in a bailout to farmers harm by his tariff scheme, “Trump Accounts” for kids, and (much less actually) a $2,000-per particular person tariff rebate for taxpayers.
All of that presages new demand within the financial system, and a chance that can find yourself as both elevated earnings per share for corporations or further demand for shares from savers.
Right here’s a snapshot of the markets forward of the opening bell in New York this morning:
- S&P 500 futures are up 0.33% this morning. The final session closed up 0.88%.
- STOXX Europe 600 was down 0.17% in early buying and selling.
- The U.Okay.’s FTSE 100 was down 0.39% in early buying and selling.
- Japan’s Nikkei 225 was up 1.81%.
- China’s CSI 300 was up 0.95%.
- The South Korea KOSPI was up 2.12%.
- India’s NIFTY 50 was up 0.79%.
- Bitcoin was at $89K.
