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20.02.2025 10:23 AM
The Market Sets Record After Record

The S&P 500 has reached a new all-time high, ignoring the Federal Reserve's commitment to maintain the federal funds rate at 4.5% for an extended period. The minutes from the latest FOMC meeting did not significantly impact investors. Instead, they focused on Donald Trump's comments about the possibility of a trade deal with China and his support for the House of Representatives' $4.5 trillion tax cut proposal. The potential for fiscal stimulus, combined with the absence of a trade war, provides strong support for the ongoing rally in the broader stock index.

S&P 500 Performance

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The longer the Fed pauses its monetary easing cycle, the less pressure financial markets face. People adapt to both good and bad conditions. While monetary policy remains restrictive, the U.S. economy continues to show resilience, operating near full employment, which allows the country to sustain high interest rates. According to FOMC officials, rate cuts will begin once the downward inflation trend resumes.

Investor attention is increasingly focused on the specter of trade wars. The White House alternates between imposing tariffs and granting deferrals, leading markets to suspect that Donald Trump's threats are merely a negotiation tactic. Supporting this notion is the president's statement that a trade agreement with China remains possible. Notably, the Republican administration provided tariff relief to Mexico and Canada while maintaining a 10% tariff on Chinese imports.

Trump's threats to impose a 25% tariff on automobile imports have prompted the European Union to act. The EU is considering lowering its import duties, which currently stand at 10%—significantly higher than the U.S.'s 2.5% tariff. It's possible that Trump is not aiming to dismantle global trade but to push for an overall reduction in tariffs worldwide. If this is the case, risk assets stand to benefit.

U.S. protectionism and its potential retreat contribute to reduced volatility and a weaker U.S. dollar index, which is positive news for equities.

U.S. Dollar Volatility Performance

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Market psychology indicates that the S&P 500's upward trend is not expected to be linear. After two years of rallies exceeding 20%, many investors have entered the market at elevated prices. If market shocks occur, these later buyers are likely to sell their holdings first, which could lead to volatile price fluctuations and consolidation within the broader stock index.

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However, a new growth catalyst may soon emerge. The House of Representatives is reviewing a proposal to cut taxes by $4.5 trillion in exchange for a $2 trillion reduction in government spending and a $4 trillion increase in the debt ceiling.

From a technical standpoint, the S&P 500's daily chart indicates an uptrend recovery, supporting the continuation of long positions established from the 6,075 level. However, a drop below 6,100 with a close beneath this level would increase the risk of activating the Broadening Wedge pattern.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
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