The US market is in a “calm before the storm” scenario, with major indices near record highs but poised for volatility depending on the Fed’s decisions. The central focus is the upcoming Federal Open Market Committee (FOMC) meeting on Wednesday. The market has largely priced in an expected 25 basis point interest rate cut following a softer-than-expected inflation reading (PCE index) last week. The S&P 500 is less than 0.5% from its all-time high, supported by recent economic resilience and AI adoption. AI will boost earnings and GDP in 2026 and beyond, this is bullish for the stock market.
This explains why each time we see a pullback markets rally back to the top. For example the Russell 2000 has rallied with 1 point of its all-time high. When a market retraces 100% of the previous decline the odds favour a new high. In general counter trend rallies end below a 90% retracement. So there is a question mark about the next move, will the US markets make new highs or not?
Based on the wave count the next move is down because the first wave of the bull market is complete, but based on the fundamentals, markets should rally. I am still trying to figure out what could cause a major correction in this bull market. A new high would help the FTSE 100 rally further, however, as long as US markets remain below their highs I remain bearish on the FTSE 100. As there is now a good chance of a new high in the US I will not short the FTSE 100, at least until there is more clarification about the wave count. Also we must remember that we are in a positive seasonal period, the period during Christmas is generally bullish for stocks.