A de-escalation in US-China trade tensions and lower tariffs could ease US stagflation risks. US levies have fueled inflationary pressures, curbing consumer spending. Lower US tariffs on Chinese shipments may dampen US import costs, cool inflation, and potentially boost consumer spending.
Markets React: Futures Rally as the Fed Decision Looms
US stock futures rallied in morning trading on Tuesday, September 16, following overnight record intraday highs for the Nasdaq Composite Index and the S&P 500. The Nasdaq 100 E-mini gained 249 points, the S&P 500 E-mini rose 57 points, while the Dow Jones E-mini climbed 315 points.
President Trump’s attempt to remove Fed Governor Lisa Cook faced a setback. The US Court of Appeals rejected Trump’s bid to fire the Fed governor, easing immediate concerns about Fed independence.
Economists expect a 25 bps cut, though some still speculate about a larger 50 bps move.
Economist Adam Kobeissi underscored the significance of Wednesday’s interest rate decision, stating:
“The Fed is about to add rocket fuel to the fire: Since 1980, 100% of Fed rate cuts with the S&P 500 at record highs have led to more record highs 12 months later. Not to mention, this time around, we are in the midst of the AI Revolution, which is barely in its 2nd inning.”
However, downside risks linger, given elevated inflation. A less hawkish Fed rate path may weigh on risk assets.
Can Retail Sales Derail the Fed from a Dovish Rate Path?
Later Tuesday, traders should brace for US retail sales data, which will provide insights into the US economy. Economists forecast a 0.3% increase month-on-month (MoM) in August after July’s 0.5% increase.
A higher print could ease recession fears, given that private consumption accounts for around 67% of the US GDP. Positive data may lift risk appetite as the Fed is more focused on a cooling labor market vis-à-vis monetary policy.
On the other hand, a lower reading may raise recession jitters, potentially testing risk appetite.
Because the Fed is laser-focused on the labor market, today’s data is unlikely to shift policy unless there is a sharp drop.
Aggressive easing would cut borrowing costs and lift earnings and share prices. Rate-sensitive stocks, including the Magnificent Seven companies, would benefit from a more dovish Fed policy stance. Adam Kobeissi highlighted the potential impact of lower rates on borrowing costs, commenting:
“Magnificent 7 companies alone are investing $100 billion+ per quarter in CapEx.”
Key Technical Levels for Dow Jones, Nasdaq 100, and S&P 500
The morning rallies reaffirmed the short-term bullish bias. However, momentum hinges on the FOMC’s rate decision, projections, and Fed Chair Powell’s press conference. Trade developments will also affect risk sentiment. For traders, here are the key levels that could determine market direction in the coming sessions.
Dow Jones
- Resistance: September 16 record high of 46,270 and then 46,500.
- Support: 46,000, 45,500, and then the 50-day EMA (44,922).