S&P 500 futures were up a solid 0.35% 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 in 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 CME FedWatch tool, which tracks bets on fed funds futures. That number has been ticking up gradually all month.
The Fed has also begun another program that adds liquidity to the market: Its monthly Reserve Management Purchases (RMPs), each worth $40 billion. The purpose of the program is to provide more daily liquidity for banks borrowing in the “repo” market. Banks often borrow money overnight to fund their operations but interest rates had recently become more volatile than they are intended be, so the Fed is lubricating that market with monthly purchases of short-dated T-bills.
It is not intended to be a new round of “quantitative easing,” but as far as some on Wall Street are concerned it might as well be—and that’s likely to be good for stocks.
“Over the past 2 weeks, the Fed’s balance sheet has grown by $21.1b 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%.”
At Wells Fargo, Ohsung Kwon and his colleagues see it much the same way. New money means buy the dips when they occur, they recommended to clients last week. “We expect a sharp rebound in our Liquidity Indicator as the Fed expands its balance sheet by $40B/mo. Historically, dips were buying opportunities in a liquidity upcycle, a simple strategy of buying SPX at the close on 1%+ drop days and selling at the close the next day, largely followed the liquidity regime. With liquidity entering a mini upcycle, we believe equity dips will become buying opportunities,” they said.
And then there is what Axios has labelled President Trump’s “cash bazooka”: a $1,776 “warrior dividend” for members of the military, billions in a bailout to farmers hurt by his tariff scheme, “Trump Accounts” for children, and (less certainly) a $2,000-per person tariff rebate for taxpayers.
All of that presages new demand in the economy, and a 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:
- S&P 500 futures are up 0.33% this morning. The last session closed up 0.88%.
- STOXX Europe 600 was down 0.17% in early trading.
- The U.K.’s FTSE 100 was down 0.39% in early trading.
- Japan’s Nikkei 225 was up 1.81%.
- China’s CSI 300 was up 0.95%.
- The South Korea KOSPI was up 2.12%.
- India’s NIFTY 50 was up 0.79%.
- Bitcoin was at $89K.
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