S&P 500, NASDAQ, and Dow Jones: Can US Indices Stay Bullish as the Fed Cuts Rates?

The S&P 500 (SPX), Nasdaq, and Dow Jones 30 are at a pivotal juncture. While the Federal Reserve has begun cutting rates, rising fiscal debt and weakening consumer sentiment present growing risks. At the same time, loose financial conditions, ample liquidity, and steady retail sales continue to support equity markets. This article examines the macro environment, bond market trends, consumer behavior, and technical patterns to evaluate the next move in U.S. stock indices.

Treasury Yields and US Fiscal Deficit: A Mounting Threat to Markets

The US Treasury market remains under pressure. The 10-year Treasury yield rebounded from long-term support at 4.0% after less dovish-than-expected FOMC projections. Despite this rebound, the trend remains downward, and a break below 3.9% would signal a target of 3.5%. This downtrend reflects cyclical weakness and investor positioning for further monetary easing.

At the same time, fiscal concerns dominate the outlook. Despite tariff receipts, the US deficit reached $1.97 trillion in the eleven months to August 2025. The full-year deficit for fiscal 2025 is expected to close at $1.9 trillion, compared to $1.82 trillion in fiscal 2024. With debt levels unsustainable, raising taxes or cutting spending does not look like a viable solution. Therefore, inflation is seen as the way to reduce the real burden of debt, which creates a long-term risk for bondholders.

Loose Financial Conditions and Buybacks Continue to Fuel Market Rally

Financial conditions remain loose despite fiscal pressures. The chart below shows that high-yield spreads narrowed below 8%, signalling abundant credit availability. Moreover, Bitcoin (BTC) confirmed support at $105,000 and rallied above $117,000, highlighting investor appetite for risk and confirming liquidity in the system.

Stocks are also benefiting from record buybacks and strong ETF inflows. This liquidity backdrop continues to support the S&P 500, Nasdaq, and Dow Jones. However, the divergence between financial markets and the real economy is becoming more pronounced. Equity valuations continue to rise even as the macro environment grows more fragile.

Consumer Sentiment Weakens Despite Resilient Spending and Retail Sales

Consumers are still spending, but cracks are appearing. The chart below shows that the real retail sales increased to $226.4 billion in August 2025, keeping pace with the long-term uptrend.

On the other hand, the light vehicle sales dropped to 16.1 million annual units but remain healthy. A drop below 15 million would be an early warning of contraction.

However, consumer sentiment shows signs of weakness. The University of Michigan index fell to 55.4, a level last seen during the COVID-19 pandemic.

According to Statista, the unemployment rate is expected to rise in 2025 and 2026 and remain elevated for the next decade, as shown in the chart below.

Moreover, the inflation expectations have increased to 4.8% for one year and 3.9% for five years, as shown in the chart below.

This combination of resilient spending but worsening confidence suggests consumers may soon pull back. If the labour market remains weak, the impact on stock indices could be severe. Cyclical sectors within the Dow and growth-sensitive tech stocks in the Nasdaq would be most exposed.

US Dollar at Risk and Gold Rally Signal Rising Global Uncertainty

The US Dollar Index is testing long-term support at 96, as shown in the monthly chart below. A breakdown would signal a strong drop toward the 90 level. This decline would fuel safe-haven demand, driving strong rallies in gold (XAU) and silver (XAG).

The weakness reflects expectations of further Fed rate cuts and ongoing fiscal concerns. A softer dollar supports equities in the short term but strengthens the case for gold as a hedge against inflation and fiscal stress.

Gold remains in a long-term uptrend as investors hedge against bond market instability and rising debt. The near-term target for gold is $4,000. However, the long-term outlook stays strongly bullish, with prices likely to push above $4,000 through this cycle window.

How Macro and Market Forces Are Shaping US Equity Indices

The S&P 500 remains supported by liquidity, but stretched valuations are a growing concern. The Nasdaq benefits from falling rates, which lift tech valuations, yet it is vulnerable to sharp sentiment shifts if growth slows. The Dow Jones, with its cyclical exposure, is most at risk from labour market weakness and rising unemployment expectations.

In the near term, indices gain support from falling yields and abundant liquidity. However, long-term risks from fiscal debt, inflation, and weak consumer sentiment remain significant. Investors should watch the 10-year Treasury yield closely. A break below 3.9% could drive another equity rally, while a bond market selloff would threaten recent gains.

S&P 500 Analysis – Bullish Breakouts Point to Higher Targets

The weekly chart for the S&P 500 shows strong bullish price action. The index has formed an inverted head and shoulders pattern, with the head at 3,491.58 and the shoulders at 3,636 and 3,808.

This pattern broke above the neckline at 4,600, triggering a strong surge to new record highs. Since then, the index has been trading within a broadening wedge pattern, which keeps the outlook strongly bullish in the short term and signals potential for higher levels.

The bullish price action in the S&P 500 is also visible on the daily chart. The index has formed an inverted head and shoulders pattern and now trades within an ascending channel. After breaking out from the neckline near the 6,000 level, the target for the index remains at 6,700, keeping it on track to move higher. Moreover, the 50-day SMA remains above the 200-day SMA, confirming a strong bullish trend in the index.

NASDAQ Analysis – Patterns Show Strong Momentum Toward Record Highs

The Nasdaq index trades within a strong bullish trend, highlighted by a cup formation that developed in 2022. This pattern broke out in 2024 at the long-term resistance of the 16,600 level. After the breakout, the index continued to rise steadily, marking new highs.

It has repeatedly generated buy signals along the 16,600 trendline, each time pushing the index to fresh record levels. Recently, the Nasdaq broke through resistance at the 29,000 level, signalling a breakout from the broadening wedge pattern and pointing toward new record highs.

The daily chart for Nasdaq 100 shows an inverted head and shoulders pattern, with the index trading inside an ascending broadening wedge between the 22,700 and 25,000 levels. This wedge formation signals rising volatility and suggests that the index could experience sharp moves in the coming days.

Dow Jones 30 – Inverted Head and Shoulders Targets 50,000

The Dow Jones 30 recently broke the key 45,000 level within a broadening wedge pattern, triggering a strong move higher. The breakout was supported by an inverted head and shoulders formation and signals a potential move toward the 50,000 level in the coming weeks. This pattern also confirms a solid base, suggesting that the index is likely to trend higher in the next few weeks.

Key Risks for US Equities: Debt, Sentiment, and Safe-Haven Rotation

US debt levels are rising, posing a serious long-term threat to equity markets. A bond market revolt could drive yields higher and erode the liquidity that currently supports stock indices. Any sustained selloff in Treasuries would place significant pressure on valuations for the S&P 500, Nasdaq, and Dow Jones.

Moreover, the consumer sentiment has dropped to levels last seen during the COVID-19 pandemic.  The unemployment expectations are increasing, which poses risks to the financial system. A sharp decline in consumption would first impact cyclical sectors in the Dow, with growth-sensitive Nasdaq stocks also coming under pressure. Weakening demand remains a key downside risk for equities.

Moreover, a softer dollar can support equities in the short run, but it also signals deeper concerns about fiscal stability and Fed policy credibility. The increase in geopolitical tensions and volatility in commodities adds to the uncertainty. These risks make US indices vulnerable to sharp reversals despite their strong near-term momentum.

The chart below presents the S&P 500 to gold ratio, highlighting major turning points in the relative performance of US equities against the precious metal. The peaks in 2000 and 2024 mark periods when equities significantly outperformed gold before sharp reversals. On the other hand, the troughs in 2011 and earlier reflected gold’s dominance during equity weakness.

The current decline from the 2024 resistance suggests that gold is gaining strength relative to the S&P 500, signaling potential headwinds for US equities. Historically, downturns in this ratio have coincided with broader stock market corrections or prolonged periods of underperformance. This means US equities could face increased downside risk if gold continues to outperform. This shift reflects investor preference for safe-haven assets amid concerns over inflation, debt sustainability, and slowing economic growth.

Bottom Line

US equity markets remain in an uptrend, but mounting risks threaten their sustainability. While the Federal Reserve’s rate cuts have fuelled momentum, macro vulnerabilities persist. The rising fiscal deficits, weakening consumer sentiment, and growing global volatility challenge the durability of the rally.

A break below 3.9% on the 10-year Treasury yield could drive further equity gains. However, failure to control inflation may reverse recent strength. Moreover, the US Dollar Index is testing critical support, and a breakdown could trigger a sharp decline toward the 90 level. This selloff would likely fuel strong safe-haven demand for gold. Recent gains in the gold market reflect rising investor concerns about the stability of equity markets.

The Key risks to watch are as follows.

• Rising US debt threatens long-term market stability.
• Weak consumer sentiment may pull back spending.
• Gold outperforming equities signals growing fear and safe-haven rotation.
• US Dollar breakdown may fuel volatility across global assets.
• Overvalued tech and cyclicals face correction if growth disappoints.

In short, US indices are riding a wave of liquidity. The S&P 500, Nasdaq, and Dow Jones 30 continue to climb within a strong uptrend. However, risks are building, and caution is warranted. Investors should monitor trends in bond yields, market sentiment, and gold to navigate the next move in US equities.