Fed Outlook and Stocks
The market now has more certainty on the Fed's next move for the rest of this year. Pricing points to at least a 125 basis point rate hike by year-end. A second hike is a 50-50 chance. The October meeting is the most in doubt, partly because of politics tied to that meeting's calendar.
Yesterday brought a broad-based rally led by tech, with a risk-on tone. All of the "Magnificent Seven" names finished green. On the E-Mini S&P 500, the last few months show consolidation. This morning price recovered both the 50-day and 20-day moving averages, but it stays in a flagging consolidation pattern. Yesterday hinted at a possible break higher.
Today carries heavy mechanical activity from quarterly expiration. AM options for the S&P 500, NASDAQ, and Russell expire in the morning, futures expire, and quarterly equity options expire. Expect strong volume. The bigger wild card is next week, including the Bank of Japan meeting and the yen reaction.
Crude Oil
Crude trades near $96 a barrel, down about 4% this week, which helped support equities over the past 24 hours. The active contract just rolled; price sits around $96.26.
On fundamentals the picture is mixed, and oil looks a little underpriced on a historical basis. Half of the East-West pipeline could come back online. That pipeline is actually two lines joined together - one carries crude oil, the other carries byproducts. Saudi Aramco has not said which will restart. That choice matters for tankers loading ships to move product out.
News this morning: Saudi Aramco told two European refining companies they will get no crude oil allocations next month, and it sounds like this covers all European buyers. The port Europeans use to get this crude sits in the Mediterranean Sea but connects to the Red Sea pipeline, which is the source of the disruption. Europe must also source natural gas ahead of winter, so it may face added inflation pressure.
Some negotiations may be forming, which is the bearish case for crude. Next week's calendar: President Trump and Xi meet Thursday; the UN meeting; the US has approved visas for top Iranian leaders to attend the UN; and Trump meets some Gulf countries on Tuesday. A deal is likely being pursued to cut tensions and lift flows through the Bab-el-Mandeb and the Strait of Hormuz.
Trump told Axios late yesterday he is nearing a major crossroads on the Iran war and whether to restart massive attacks, so the Gulf leaders meeting next week could be key and will still drive markets.
One oddity: contracts usually converge in price near expiration. The October contract has about 14 days left, yet a $530 differential remains between the two contracts - one of the wider gaps seen this close to expiration on a physical contract.
Bank of Japan and the Yen
The BOJ raised its policy rate to 1.25%, a 31-year high, marking a pivot over its last couple of meetings. Two of the nine board members dissented, making it a dovish hike rather than a hawkish one. The bar had been set high after hawkish Fed commentary from Kevin Walsh.
The yen broke down against the dollar, falling over 1.2% this morning on the USD/JPY pair. The Nikkei advanced fairly aggressively, because a cheaper yen can spark export demand - a double-edged effect. On the three-year weekly chart, last week's downtrend reversed into what can be called a bullish engulfing candle.
Forex trading is hard because of intervention from the central bank and other central banks. Technically USD/JPY could rise to around 159.4. If the move gets too aggressive to the downside, the question is whether the US steps in with another intervention, reversing what Scott Bessent and the BOJ worked to dampen. That would test whether they reload and knock the market down again. The dollar has shown strength this week, following the Fed and EU raising and the Bank of England holding, part of a global trend of rising rates.
Warren Buffett Steps Down
Warren Buffett is stepping down as chairman of Berkshire Hathaway (BRK/B), becoming chairman emeritus, effective immediately, saying "Father time always wins." This follows Greg Abel taking over to lead the company. Buffett's son moves into the chairman role, and Susan Decker continues as independent director.
Many leadership disruptions had already been laid out for investors, and the company has been transparent. The succession plan was known, but the immediate timing is a surprise. Yesterday financial companies mostly performed well, yet the XLF dragged lower. Berkshire is the single biggest component in XLF and fell more than 2% yesterday, which now makes sense given the news - it looks like someone knew something ahead of time.
Buffett became famous for beating the market, generating roughly a 19.7% compounded annual return since 1965. Berkshire is deploying capital, more than in prior years, with several deals done this year. The company must keep its image while also transforming it, which may again drag XLF and other ETFs weighted toward BRK/B. Financials have rolled over this week, possibly profit-taking after strong 2026 performance.
S&P 500 Levels
The S&P 500 spent two sessions below its 50-day simple moving average, then bounced back above it yesterday. It held the 7500 level, with 7690 to the upside and 7590 to the downside - a 100-point spread between top and bottom strikes on calls and puts, implying about a 0.9% move either way. Expect the readjustment or fallout from expiration to hit Monday or Tuesday next week, with possibly elevated volume as positioning shifts for the holiday trading season.
