S&P 500 Near Key Breakout Zone as Markets Bet on a Fed Cut Fueling a Santa Rally

• Fed cut expectations power the rise, but momentum slows as tech valuations look stretched.
• Key support 6791–6812 holds trend; break below shifts focus to 6731 then 6590.
• 6852–6900 is supply wall; breach clears path toward 6953 then 7000 milestone.
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Global stocks advanced in the first half of Thursday’s session, and US futures pointed to a flat start for the S&P 500, following a run in which the index has risen in seven of the past eight sessions. But the slowing pace of the rally and existing concerns over a potential bubble in AI and tech names are among factors that have some traders wondering whether a Federal Reserve interest rate cut next week will help drive a so-called Santa rally into year-end.

Why Have Stocks Been Rising?

Expectations of Federal Reserve rate cuts have helped markets claw back ground after November’s wobble, with investors edging towards defensive names and broader sectors amid lingering concerns that tech valuations have run a bit too hot. Softening sentiment around the jobs market — coupled with growing expectations that President Donald Trump will opt for a dovish-leaning Fed chair — has nudged market pricing towards the prospect of up to four rate cuts by 2026.

Markets like rate cuts, and that seems to be offsetting concerns about the weakening jobs market and the potential for more job losses as firms continue to replace human labour with AI.

What Risks Are Markets Facing?

Outside of the prospects of lower interest rates and stable inflation, there are not many other supportive factors right now to keep the trend going. Recent concerns over the market’s growing concentration in a small number of tech stocks and the risk of a bubble in the AI sector are still in the background.

Meanwhile, rising bond yields in Japan have so far been brushed off, helped by solid demand for government debt at recent long-term bond auctions. But if signs emerge that investors are rotating out of stocks and into bonds amid concerns over the reverse carry trade, then that could also negatively impact the US and global markets.

Then there are recession risks hurting company profits. But so far, none of these concerns have seemed to matter. Could that change soon?

S&P 500 Technical Analysis and Trade Ideas

Following last week’s sharp recovery, the S&P 500 hasn’t made much headway so far this week. Even so, it continues to hold a modestly bullish bias, largely because price has remained above last week’s high. At the time of writing, the index still looked constructive, albeit without any real momentum behind the move. A handful of previously broken levels have now been reclaimed, giving the appearance that the bulls are once again in control.

That said, the absence of any major bullish catalyst does raise questions over whether the market can genuinely extend from here. Sellers, for their part, have effectively lost control of recent price action. For sentiment to turn bearish again, we would need to see clear evidence of a reversal taking shape. For me, that would require a clean break below key support at 6791–6812 – the blue-shaded region on my charts.

If that area were to give way, the index could quickly revisit 6731, with 6590 (an intraday level) coming into view thereafter. Beneath that, the recent range lows at 6525-6540 would re-emerge as the next downside target.

As for resistance, the market continues to trade within the 6852–6900 band – a key supply zone and the area from which selling pressure first emerged back in mid-November before the subsequent recovery. The bears will need to defend this region firmly if they’re to regain the upper hand.

Should the index instead break above 6852–6900, that would likely open the door to fresh all-time highs beyond the October peak at 6953. And if we get that far, the natural question becomes: why stop there? A run towards 7000, the next major psychological milestone for S&P 500 futures, would be perfectly plausible.

So, in summary: at the time of writing, the bullish bias technically remains intact, but the lack of momentum means risks are fairly balanced. I’d prefer to see either a decisive breakout above resistance or a breakdown below the highlighted support area before forming new trade ideas. Where the index sits right now feels like neutral territory, and from a purely technical standpoint, I don’t hold a particularly strong directional view until we get that next clear trigger.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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