S&P 500 futures were up a solid 0.42% this morning before the opening bell in New York, after the index added 0.88% in its Friday session. The Christmas week is—obviously—often a quiet one with thin trading and low volatility. Traders are focused more on positioning for 2026 than they are on the week ahead, and so far they appear to like what they are seeing for the year ahead.
We may even see a new all-time high—the S&P is just less than 1% from its previous record peak.
Two big reasons for that are the Fed and President Trump.
Most recently, the U.S. Federal Reserve delivered a cut in interest rates of 25 basis points, bringing the base rate down to 3.5%. Cheaper borrowing costs usually result in more money flowing into equities. Traders are not expecting another interest rate cut in January, but 46% of them are now pricing in one for March, according to the CME FedWatch tool, which tracks bets on Fed funds futures. That number has been ticking up gradually all month.
“Over the past two weeks, the Fed’s balance sheet has grown by $21.1 billion using reserve management purchases (RMPs), with the stated intent of keeping repo and related markets operating smoothly,” Piper Sandler’s chief global economist, Nancy Lazar, told clients over the weekend. “The Fed emphatically says this is not quantitative easing. Nonetheless, from an eco-perspective, the added banking reserves will help keep short rates lower, helping support M2 and bank loan growth.
Putting all this together, an expanding Fed balance sheet will further boost [the money supply] and bank loans, in turn supporting nominal GDP growth, which is already healthy at ~5%.”
All of that presages new demand in the economy, and the likelihood that will end up as either increased earnings per share for companies or extra demand for stocks from savers.
Here’s a snapshot of the markets ahead of the opening bell in New York this morning:
