The S&P 500 remains rangebound but technically intact, with the Fed potentially serving as the market’s next major catalyst
“
The Stock Market’s Breezy Summer Is Over. Investors Beware.”
-The Wall Street Journal front-page headline, Sept. 7, 2026
The stock market faced multiple headwinds last week, with the 10-year Treasury yield rising sharply to just below 5% and reaching a level not seen since October 2023. Yields rose amid inflation reports and despite Treasury Secretary Scott Bessent’s attempts to bring them down by supporting the Japanese yen and providing more details on the Treasury’s bond buyback program, which disappointed investors.
The U.S./Israel-Iran conflict continued, with tankers being blown up and oil prices surging too... a familiar headline since the conflict began in late February.
Additionally, ahead of Wednesday’s Federal Open Market Committee (FOMC) meeting, fed funds futures traders increased the odds of a 25-basis-point rate hike from 59% the prior week to an 86% probability as of Friday afternoon.
As reflected by a front-page story in The Wall Street Journal last week (see headline above), there is plenty of caution surrounding the market. In fact, strategists at RBC Capital and Deutsche Bank joined J.P. Morgan, Citadel and Wells Fargo in cautioning investors, citing factors ranging from September seasonality -- even though September has had roughly a 50-50 chance of finishing higher since 2000 -- to the rate environment and the sustainability of the AI boom.
“The Standard & Poor’s 500 Index (SPX-7,718.60) May through July range has turned into an August-September consolidation, with roughly 200 SPX points separating the low and high ends of the ranges in both cases. The area around the intraday (and then) June all-time high has been supportive during the last two pullbacks since the early August breakout. Last week’s low of 7,631 was just above the June high of 7,621.”
-Monday Morning Outlook, Sept. 7, 2026
Amid the headwinds and a growing chorus of market analysts singing caution, the S&P 500 Index (SPX--7,656.98) has been resilient, closing Friday less than 2% below its all-time high, reached last month.
But since mid-May, the index can be described as extremely choppy, directionless and rangebound.
For example, more than nine months into the year, nearly all of the SPX’s year-to-date gain occurred from mid-April to early June and during a single day in early August. Outside those periods, the index has traded sideways or below its year-end 2025 close, with the Aug. 4 pop simply marking the beginning of its third notable range this year. Specifically, outside Thursday’s close just below 7,600, all SPX closes since Aug. 4 have been contained between 7,600 and 7,800.
“Investors poured a net $13.09 billion into European equity funds and $4.22 billion into Asian equity funds, while withdrawing roughly $11.12 billion from U.S. equity funds.”
-Reuters, Sept. 4, 2026
Unless and until there is notable technical deterioration in the market, such as a break below intermediate-term support at its 80-day moving average or the 7,530 level that essentially marked the top of the last range, I suspect patience will ultimately reward bulls.
If I saw optimism building as the current range unfolded, I would be less confident about the next major move being higher. A case in point is the latest American Association of Individual Investors (AAII) weekly survey, which showed more bears than bulls. Bearish majorities occurred regularly after the market bottomed in April and into June. In those cases, the majority was proven wrong, as sector rotation was enough to keep the market on solid footing until the early-August breakout.
A potential catalyst to “move the needle” in the days ahead is the Fed, with the midterm elections looming as another potential catalyst that could remove uncertainty.
“With the CBOE Market Volatility Index (VIX-15.30) hitting a year-to-date low on Friday, many could be tempted to hedge a long portfolio since portfolio insurance is inexpensive. In fact, depending on your risk-reward tolerance, this might make a lot of sense if you have little risk tolerance amid the many uncertainties lurking, including the next Fed meeting in mid-September. But for those of you with a higher risk tolerance, I continue to suggest identifying a ‘crack’ in the technical backdrop before implementing a portfolio hedge, at the risk of paying a higher price if that indicator appears.”
-Monday Morning Outlook, Sept. 7, 2026
The SPX enters this week at the bottom of its recent range, with a Fed meeting looming. The only sentiment-based indicator supporting the growing caution among Wall Street strategists is extreme bullishness among fund managers, which could have bearish contrarian implications if they head for the exits at once and give already cautious investors even more reason for concern.
As such, my message has not changed.
That is, if you are risk-averse, you can use index or exchange-traded fund (ETF) put options to hedge against the risk of fund managers heading for the exits after the Fed meeting and ahead of the midterm elections. The Cboe Volatility Index (VIX--15.84) remains fairly low, meaning portfolio insurance is relatively cheap. Friday’s VIX close is about half its 2026 calendar-year closing high and just above its mid-August calendar-year closing low of 14.25.
If you are willing to accept more risk, the play is to await a technical crack in the market before putting on a more expensive portfolio hedge.
Todd Salamone is Schaeffer's Senior V.P. of Research.
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