Fed Rate Pause Could Clear Path for Further S&P 500 Gains

Geopolitical factors and higher-for-longer interest rates have taken the steam out of 2023’s equities rally the past few months. But the recent rate pause could clear the path for gains in the S&P 500 for the remainder of the year.

The index was up about 20% just before August until an end-of-summer slowdown started to push stocks lower. Combined with more Fed rate hikes and geopolitical events, investor sentiment subsequently took a hit and a safe haven scramble ensued.

Stocks took a hit, but so did the bond market. Rising yields have been pushing bonds down along with equities. But there are early signs that the sell-off could be waning. Of course, nothing is confirmed.

Will Fed Hold on Rate Hikes Indefinitely?

“This is a bounce off of a few very bad months in the equity market, a really massive sell-off in fixed income. The Fed meeting is behind us. We can now look forward to some of the economic data and see if that confirms the Fed can stay on hold indefinitely,” said Megan Horneman, chief investment officer at Verdence Capital Advisors, per a CNBC report.

Moving forward, the market narrative will still center around inflation. While the Fed remains data dependent, the capital markets will be laser focused on what the Fed will do with interest rates, whether it’s a continuation of the pause or potentially another hike.

The one certainty is more volatility ahead. That, in turn, should give traders something to work with in terms of market opportunities.

“I think that there still is volatility we’ll see in inflation,” Horneman said. “The one thing that concerns us is that inflation is extremely easy to reignite.”

SPY Chart

SPY data by YCharts

Profit as a Bull or Bear

When the S&P 500 rises, traders can play to the upside with the Direxion Daily S&P 500 Bull 3X Shares ETF (SPXL). The fund offers thrice the leverage, so only seasoned traders should use these products for profit maximization.

If the scenario of another rate hike plays out and bearishness occurs in the S&P 500, then traders can use the Direxion Daily S&P 500 Bear 3X ETF (SPXS). The fund takes the opposite direction of SPXL, providing a hedging component if the S&P 500 experiences selling pressure.

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