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Stocks finished the day flat, surrendering earlier gains ahead of the Federal Open Market Committee (FOMC) rate decision. Yesterday, I mentioned that an ideal scenario would have been a drop in the S&P 500 below 5,965. While we didn’t achieve that today, nothing occurred to invalidate expectations for further downside. Friday now becomes pivotal, especially given option expiration and the current index positioning. Notably, we also closed below the 10-day EMA for the third time in four days.
It’s worth noting that once we move past Friday, support levels due to gamma positioning in the S&P 500 will drop toward 5,905, coinciding with the JPM Collar’s position. Given this alignment, that area could act as a magnet for the index next week.
(BARCHARTS)
The Fed didn’t announce any headline-grabbing changes today. Still, beneath the surface, they downgraded their growth forecast, raised expectations for inflation and unemployment in 2025, and reduced anticipated rate cuts for 2026 and 2027. More critically, considering forecasts from both the market and the Fed, it seems increasingly clear—barring an economic crisis—that the era of 0% interest rates has ended, pointing toward structurally higher rates on the long end of the yield curve.
The 30-year Treasury rate ended the day essentially unchanged, but notably, it moved from around 4.86-4.87% before the Fed announcement to close at approximately 4.89-4.90%. Given the Fed’s projection of a 3% long-term overnight rate, it’s puzzling why the 30-year rate trades just 55 basis points above the 3-month Treasury bill. This narrow spread seems unusual and implies that long-term yields likely need to move significantly higher.
I’m not entirely sure of the accuracy of this move, as it seems quite unusual, and it could potentially reverse by Friday. Nonetheless, it’s worth noting that today we saw a significant jump in 1-year and 2-year inflation swap rates, with the 1-year spiking to 3.55% and the 2-year rising sharply to 3.19%. Interestingly, this increase didn’t extend to the 5-year inflation swap. I’m uncertain if the market is anticipating a sudden spike in oil prices or something else entirely, but it certainly stands out as unusual.
Oil didn’t see significant movement today, but if the U.S. becomes actively involved in the Middle East conflict, we could see a sharp spike in oil prices, which would drive inflation expectations higher. Additionally, upcoming announcements regarding tariff rates could also push inflation expectations upward. Therefore, either today’s inflation swap data is anomalous, or the market may be anticipating news that isn’t yet known.
-Mike
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Gamma Positioning
Reflects how options market-makers’ hedging activity impacts stock price movements, often creating significant support or resistance levels around certain strikes.
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JPM Collar
A popular hedge trade executed by JPMorgan involving options on the S&P 500, known for influencing market flows and levels significantly, especially near expiration dates.
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Inflation Swap Rates
Financial instruments indicating market expectations for future inflation. Investors swap fixed-rate payments for payments linked to realized inflation.
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
Subscribe to receive this FREE daily commentary directly in your email
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
Rising Inflation Signals And Tariff Uncertainty Set Stage For Volatile Summer
Mott Capital's Market Chronicles July 11, 2025 12:32 PM