Look Out for a “Quad-Witch Rally” This Afternoon

Stocks traded flat this morning as Wall Street wrapped up a strong week. Investors cheered the Federal Reserve’s decision to hit pause on rate hikes and took heart from promising inflation data.

The S&P 500 saw a slight uptick of 0.04%, while the Dow Jones Industrial Average added a mere 5 points, a negligible gain of 0.01%. The Nasdaq Composite dipped a bit, falling 0.2%.

This week, the Fed delivered what investors had been hoping for when they decided to keep rates steady on Wednesday after a streak of 10 consecutive hikes. Despite the Fed hinting at two more rate increases later this year, many Wall Street traders and economists are under the impression that the Fed could be close to calling it quits. Earlier in the week, the consumer price index for May came in at its lowest in two years, another encouraging sign.

Adobe saw a 2% rise after smashing results and offering an optimistic outlook, joining the tech stock rally. Nvidia, the AI bubble leader, saw an 11% jump this week, too, building on its impressive 196% gain this year. Microsoft rose by over 6% this week and hit a record high on Thursday. Tech shares initially took a hit when the Fed first started hiking rates.

Ed Moya, a senior market analyst at Oanda, commented, “Wall Street remains optimistic that the AI boom won’t fizzle out anytime soon and that investors will prefer US stocks as central bank policies start to diverge globally.”

He added, “This stock market rally might seem a bit stretched, but there’s still plenty of money waiting in the wings. If the AI trade stays strong, the S&P 500’s winning streak could go on.”

Friday brought more positive news on the inflation and economic front. Expectations for consumer inflation in June dropped, with one-year estimates for price pressures falling to 3.3% from 4.2% in May. The headline reading from the University of Michigan Survey of Consumers clocked in at 63.9, beating Dow Jones’ estimate of 60.2.

Today’s session could see some volatility into the close due to the quarterly rebalancing of indexes and the expiration of some options, often referred to as quadruple witching. Quad-witches have led to spikes in market volatility and trading volume in the past. But expiration weeks often lean bullish during bull markets and bearish in bear markets. This might be good news for the S&P 500 and Nasdaq Composite, both of which have had strong weeks.

With stocks closed for trading on Monday, that could amplify a bullish scramble during the final hours of trading, even if stocks continue to look extremely overbought as a whole.


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