The S&P 500 and Nasdaq have smashed through all-time highs yet again. On the surface, the market is very bullish, but when you dig into the drivers, it’s not all as bulletproof as it looks.
Market Conditions
CPI Stayed Flat at 2.7% - Inflation’s still above the Fed’s 2% target, which should be slightly bearish for stocks. But the market spun it as a win, no nasty surprises = rate cut hopes for September still alive.
Fed Cut Odds Are Through the Roof - CME FedWatch has a 94.4% chance of a September cut. Traders are basically betting the house that Powell’s delivering.
Tariff Truce Extended- Trump’s 90-day extension on the tariff truce with China has calmed nerves. Less trade tension is a green light for risk-on.
Market Sentiment Check
The Volatility Index or VIX is trading back below its 50 day moving average and the key 20 level. In these conditions the stock market is considered very bullish.
That brings me onto a couple of concerns though.
The Put/Call ratio which measures the overall expectations of market trends. It increases as investors lean on the bearish side and declines as investors become exuberant on stocks. If the 10-day average exceeds 1.1, the market is reaching a temporary bottom. Below 0.8 suggests that the market is moving towards a peak price. It’s currently at 0.89.
One misprint could rock the boat. It could just take one high inflation print to put the market on its backfoot. Participants may reconsider the Federal Reserves openness to cut rates, and the market may become volatile.
Seasonality Says… This Could Run
I was doing some seasonal research and found that over the last 25 years, August has been a bullish month for the S&P about 40% of the time (10 years out of 25).
You’re probably thinking why is he telling me this?
I did some further digging and in years when August is bullish, the price action tends to line up almost eerily with what we’re seeing in 2025 right now .
This year’s S&P 500 chart is tracking that bullish August composite fairly closely. If it follows a similar pattern then August could be a good month for the stock market.
My take
I like upside to the stock markets from a current sentiment point of view, and having some sesonal data backing it helps.
I just fear the market is getting ahead of itself. The one concern of inflation isn’t really coming in lower. What if it doesn’t?