empty
20.05.2025 09:11 AM
The Market Ignores Warning Signs

When a crowd identifies a leader, it relentlessly pushes forward, clearing everything in its way. Retail investors heeded Morgan Stanley's call to "buy the dip" and began snapping up U.S. stocks with renewed vigor. As a result, their net long positions on May 19 surpassed $4 billion for the first time in history. The market turned a deaf ear to the downgrade of the U.S. credit rating and continues to hear only what it wants to.

Logically, Moody's actions should have served as a warning signal of overbought conditions in the S&P 500. The U.S.'s fiscal issues could worsen significantly if Congress extends the 2017 tax cuts without reducing spending. This could trigger a surge in Treasury yields, increasing corporate costs, damaging earnings, and pulling down global stock indices. Currently, the increase in bond yields doesn't appear to be a concern for most people.

MSCI Index vs. U.S. Treasury Yields Dynamics

This image is no longer relevant

Nor does the Federal Reserve's unwillingness to act. According to New York Fed President John Williams, the central bank is unlikely to take a clear position on the economic consequences of White House policy before June or July. The market shouldn't expect a rate cut before September, a view echoed by the futures market, which now sees only two rate cuts by year-end. Normally, this would disappoint U.S. equities—not this time. JP Morgan has stated that even a global recession might not prompt central banks to help; they've become too complacent.

HSBC claims the U.S.–China truce has changed the game, fueling a long-term surge in risk appetite. Wells Fargo agrees, advising investors to ditch emerging market equities in favor of their American counterparts. The global economy may recover by year's end, but for now, it's time to "Buy America."

S&P 500 vs. Emerging Markets Index Dynamics

This image is no longer relevant

If a downgrade of the U.S. credit rating didn't rattle the market, something worse may be needed to trigger a correction in the S&P 500. Retail investors are inflating a bubble in the broad market index, and when it bursts, the decline could be swift. JP Morgan estimates that a credit crisis and falling earnings forecasts could cause U.S. equities to drop by 10%.

This image is no longer relevant

But would that even be enough to reintroduce fear? If Moody's and the Fed can't change the crowd's mind, can private companies?

Technical Outlook

On the daily chart of the S&P 500, bulls have managed to keep the index above the key 5900 level, preserving long positions. It makes sense to hold those longs for now, targeting 6045 and 6120. A stop-loss is recommended near the cluster of pivot levels at 5900.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Summary
Urgency
Analytic
Igor Kovalyov
Start trade
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

Dollar Extends Its Advantage

Many traders yesterday awaited remarks from Federal Reserve Governor Michelle Bowman. However, her speech, which focused on banks, AI, and cryptocurrencies, hardly had a serious impact on the currency market

Jakub Novak 11:19 2025-08-20 UTC+2

The Pound Rises on Inflation Data

According to the report, inflation in the United Kingdom increased for the second consecutive month in July, adding pressure on the Bank of England to reconsider the pace

Jakub Novak 10:58 2025-08-20 UTC+2

AUD/NZD. Analysis and Forecast

Today, the AUD/NZD pair gained strength following the RBNZ's rate decision, pushing spot prices above the psychological level of 1.1000 and reaching their highest since early March. As expected

Irina Yanina 10:54 2025-08-20 UTC+2

The Market – A Lone Warrior

In a thin summer market, where trading volumes on the New York Stock Exchange have fallen to their lowest levels since early May, even a single company can drag

Marek Petkovich 10:13 2025-08-20 UTC+2

Tension in the Markets Is Rising. Investors Are Still Hoping for Fed Rate Cuts (there is a chance of renewed growth in #USDX and Ethereum)

The stock market rally in the U.S. stumbled on reduced expectations of a Fed rate cut at the September central bank meeting. Why is this happening, and will the central

Pati Gani 09:31 2025-08-20 UTC+2

What to Pay Attention to on August 20? A Breakdown of Fundamental Events for Beginners

Only two macroeconomic releases are scheduled for Wednesday. The UK and the eurozone will publish consumer price indices for July. The European report is released in two estimates

Paolo Greco 07:26 2025-08-20 UTC+2

EUR/USD Overview – August 20: Just a Pause. Period

The EUR/USD currency pair on Tuesday (as in recent days) traded in an ultra-calm manner. On Monday, it declined, on Tuesday, it grew slightly, but overall, recent moves have taken

Paolo Greco 03:38 2025-08-20 UTC+2

GBP/USD Overview – August 20: Technicals and Nothing but Technicals

On Tuesday, the GBP/USD currency pair continued its sluggish downward movement. In principle, there is no point discussing anything other than the technical picture right now. This week, apart from

Paolo Greco 03:38 2025-08-20 UTC+2

Yen Remains in Range

Japan's real GDP grew by 0.3% quarter-on-quarter (1.0% y/y) in the second quarter of 2025, exceeding Bloomberg's market forecast (+0.1% q/q, +0.4% y/y). This marked the fifth consecutive quarter

Kuvat Raharjo 00:58 2025-08-20 UTC+2

NZD/USD. RBNZ August Meeting: Preview

On Wednesday, August 20, the Reserve Bank of New Zealand will conclude its latest meeting, where it may reduce the interest rate by 25 basis points—from 3.25% to 3.0%

Irina Manzenko 00:58 2025-08-20 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.