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Analyst: September Interest Rate Cut Likely, Options Traders Expect Stock Market to Remain Stable
BlockBeats News, September 7th. As the September rate cut by the Federal Reserve is almost a certainty, options traders generally expect the stock market to trade steadily on Thursday before the CPI data is released. However, if the data shows an increase in inflation, this bet may conceal hidden risks. The logic behind the market's expectation of a rate cut is very simple: U.S. job growth has stalled, and the economy needs stimulus. Friday's weak employment data further reinforced this expectation, prompting investors to fully digest the expected 25 basis point rate cut by the Fed next week. The market's reaction to this was muted: U.S. stocks edged down on Friday, the fear index slightly rose but remained well below the key level of 20, mostly staying below this level since June.
Looking ahead, options traders are betting that the S&P 500 index will experience around a 0.7% two-way swing after Thursday's CPI release, lower than the average actual volatility of 1% over the past year. However, this trading logic overlooks a major risk: what if the inflation data significantly exceeds expectations? "The current balance is very delicate," said Eric Teal, Chief Investment Officer at Comerica Wealth Management. "Any very positive or very negative data could change the market outlook."
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