S&P 500 futures were up 0.35% this morning before the opening bell in New York, after the index gained 0.88% during its Friday session. The Christmas week is, obviously, often calm, with few trades and low volatility. Traders are more focused on positioning for 2026 than the week ahead and so far they seem to like what they see for the year ahead.
We could even see a new all-time high: the S&P is just under 1% from its previous record.
Two big reasons for this are the Fed and President Trump.
Most recently, the US Federal Reserve cut interest rates by 25 basis points, bringing the base rate down to 3.5%. Lower borrowing costs generally translate into more money flowing into stocks. Traders don’t expect another interest rate cut in January, but 46% of them now see such a cut for March, according to the CME FedWatch tool, which tracks bets on federal funds futures. This number has been gradually increasing throughout the month.
The Fed also launched another program aimed at adding liquidity to the market: its monthly Reserve Management Purchases (RMPs), each worth $40 billion. The aim of the program is to provide more daily liquidity to banks borrowing in the “repo” market. Banks often borrow money overnight to finance their operations, but interest rates have recently become more volatile than expected, so the Fed is lubricating this market with monthly purchases of short-term Treasuries.
This isn’t another round of “quantitative easing,” but for some on Wall Street, it might as well be — and it will likely be good for stocks.
“Over the past two weeks, the Fed’s balance sheet has increased by $21.1 billion through Reserve Management Purchases (RMPs), with the stated intention of maintaining the smooth functioning of repo and related markets,” Nancy Lazar, Piper Sandler’s chief global economist, told clients over the weekend. “The Fed is adamant that this is not quantitative easing. Nonetheless, from an ecological perspective, the additional bank reserves will help keep short-term rates low, helping to support M2 and bank lending growth.”
Putting it all together, expanding the Fed’s balance sheet would further strengthen [the money supply] and bank lending, in turn supporting nominal GDP growth, which is already healthy at around 5%.
At Wells Fargo, Ohsung Kwon and his colleagues see things much the same way. New money means buying dips when they happen, they recommended to clients last week. “We expect a strong rebound in our liquidity gauge as the Fed expands its balance sheet by $40 billion/month. Historically, dips were buying opportunities in a liquidity bull cycle, a simple strategy of buying SPX at the close on days down more than 1% and selling at the close the next day, largely followed the liquidity regime. With liquidity entering a mini bull cycle, we believe stock declines will become buying opportunities,” they said.
And then there’s what Axios called President Trump’s “monetary bazooka”: a $1,776 “warrior’s dividend” for members of the military, billions of dollars in a bailout for farmers hurt by his tariff system, “Trump accounts” for children, and (less certainly) a $2,000 per person tariff cut for taxpayers.
All of this points to new demand in the economy, and the likelihood that this will translate into either an increase in corporate earnings per share or increased demand for shares from savers.
Here’s a look at the markets before the open in New York this morning:
- S&P 500 Futures Contracts are up 0.33% this morning. The last session closed up 0.88%.
- STOXX Europe 600 was down 0.17% at the start of the session.
- United Kingdom FTSE100 was down 0.39% at the start of the session.
- from Japan Nikkei 225 was up 1.81%.
- China CSI300 was up 0.95%.
- South Korea KOSPI was up 2.12%.
- India NIFTY50 was up 0.79%.
- Bitcoin was at $89,000.
