Stocks: Higher on China talks, Fed decision awaited

Have stock prices entered a correction? All eyes on the Fed right now.

The S&P 500 closed 0.77% lower on Tuesday, retracing some of its recent advances after pulling back from the 5,700 level (local high of 5,700.70 on Friday). Markets are eagerly awaiting the Federal Reserve's interest rate decision later today, though no change in rates is anticipated. The focus will be on Fed Chair Powell's comments regarding future policy direction.

This morning, U.S. stock futures are pointing higher, with the S&P 500 expected to open 0.3% higher as investors react positively to news about potential trade talks between the U.S. and China.

U.S. Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer will meet their Chinese counterparts for trade talks in Switzerland this week, their respective offices announced on Tuesday evening.

Recently, investor sentiment worsened, as shown in last Wednesday’s AAII Investor Sentiment Survey, which reported that only 20.9% of individual investors are bullish, while 59.3% are bearish.

The S&P 500's pullback appears to be a correction within the ongoing uptrend rather than the beginning of a new downtrend.

Nasdaq 100 retreating below 20,000

The tech-heavy Nasdaq, which saw steeper losses than the broader market on Tuesday, is set to recover some ground today with futures indicating a 0.4% gain at the open.

The bounce in tech stocks appears to be driven by optimism surrounding the announced trade talks between U.S. and Chinese officials in Switzerland, potentially easing concerns about the ongoing tariff tensions that have weighed on the sector.

VIX: Slightly higher

The VIX is rebounding from Friday’s local low of 22.34. Yesterday, it was as high as 25.11, suggesting increasing fear amid the coming FOMC release.

Historically, a dropping VIX indicates less fear in the market, and rising VIX accompanies stock market downturns. However, the lower the VIX, the higher the probability of the market’s downward reversal. Conversely, the higher the VIX, the higher the probability of the market’s upward reversal.

S&P 500 futures contract: Moving sideways

This morning, the S&P 500 futures contract is trading along the 5,650 level, extending a short-term consolidation after pulling back from 5,700.

The resistance remains around 5,700-5,720, while support is at 5,600, marked by the recent lows.

This sideways movement doesn't signal weakness but rather a healthy ‘recalibration’ where early buyers take profits. These pauses often create good entry opportunities for those who missed the initial move, setting the stage for the next potential leg higher when the uptrend resumes.

Conclusion

The S&P 500 is expected to open higher this morning, retracing some of Tuesday's losses. The announcement of U.S.-China trade talks has boosted sentiment, though the focus remains on today's Fed decision.

Increased volatility is likely after the FOMC release at 2:00 p.m., with Fed Chair Powell's press conference potentially amplifying market movements after 2:30 p.m.

Here’s the breakdown:

• S&P 500 closed 0.77% lower on Tuesday, pulling back from the 5,700 level.

• Futures indicate a 0.3% higher open today as U.S.-China officials prepare for trade talks.

• Fed decision due later today - no rate change expected, but Powell's comments will be closely watched.

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