S&P 500: US Indices Poised for Whipsaw – Powell’s Tone Could Unlock New Highs

S&P 500 Treads Water Ahead of Fed’s Hawkish Cut

The S&P 500 is slightly higher shortly after the opening, straddling a minor pivot at 6847.86 with traders showing little urgency to pick a side. The all-time high at 6920.34 is within reach — only 1% away — but no one’s chasing it. Not yet.

A minor top at 6895.78 is the only speed bump between here and fresh highs. Below, the picture is clearer: any bearish tilt takes out the swing bottom at 6799.94 and pulls price into the 50-day moving average at 6751.85. Deeper targets sit at a pair of 50% retracement levels — 6721.13 and 6708.85 — though those only come into play if Powell delivers something unexpectedly harsh.

Given today’s volatility expectations, both 6920.34 and 6751.85 are live possibilities. Options markets are pricing in a 1.3% swing for Fed day, the largest expected move through year-end. Traders are coiled, but they’re waiting.

Fed Set to Cut — But the Tone Is What Matters

The Federal Reserve is widely expected to deliver its third consecutive 25-basis-point cut this afternoon, bringing the target range to 3.5%–3.75%. Markets are pricing in an 87% probability. The cut itself is noise. What traders care about is the message that comes with it.

This is being called a “hawkish cut” — a reduction paired with language that raises the bar for further easing. Committee members remain split. Some want more cuts to cushion a softening labor market. Others worry that additional easing fuels inflation, which is still running at 2.8% on the Fed’s preferred measure. That division is why the post-decision statement and Powell’s press conference carry more weight than the cut itself.

The dot plot will be central. It shows where all 19 FOMC members see rates through 2026, and any deviation from the market’s assumption of two to four cuts next year could rattle sentiment. Several soft dissents are expected, reflecting the committee’s internal tension over inflation risks and growth.

Recent labor data hasn’t helped the doves. October job openings were steady, but hiring dropped by 218,000 and layoffs rose by 73,000. The slowdown is real, but it’s not severe enough to override inflation concerns — at least not yet.

Investors Want Clarity on 2026

Equities have rebounded sharply into December, pushing the S&P 500 within 0.3% of its all-time closing high. The Russell 2000 hit a fresh intraday high on Tuesday, driven by the prospect of lower borrowing costs benefiting smaller companies. A sector rotation is underway, with breadth widening beyond mega-cap tech.

But the year-end rally hinges on the Fed’s forward guidance. If the dot plot signals fewer cuts than expected, or if Powell sounds more restrictive than anticipated, the momentum stalls. Institutional models remain fragile following the government shutdown’s data blackout, leaving trading desks reactive and prone to sharp reversals.

Traders are also eyeing the return of guidance referencing the “extent and timing of additional adjustments” — Fed-speak for data-dependent flexibility. That language keeps the door open but doesn’t commit to anything, which is likely the intent.

Forecast: Cautiously Bullish, But Watch for Whipsaw

The setup leans positive. Sentiment is more bullish than bearish, no major economic threats are emerging, and buyers have been stepping in on weakness. A modestly dovish tone or a dot plot that keeps 2026 cuts on the table could fuel a push toward 6920.34 and beyond.

But if Powell leans hawkish or the committee projects fewer cuts, the downside opens quickly. A break below 6799.94 would likely draw in sellers, with the 50-day moving average at 6751.85 acting as the next logical floor. A “buy the dip” scenario is viable, provided the Fed isn’t extremely bearish.

Bottom line: the cut is priced in. The reaction depends on what Powell signals about next year. The range is tight, the volatility is real, and the market wants to believe. Whether it gets the green light this afternoon is the only question that matters.

More Information in our Economic Calendar.