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U.S. equity markets surged higher as the wishy-washy expectations of future Federal Reserve policy were galvanized into an imminent rate cut in September. Chairman Jerome Powell telegraphed resuming the Fed’s interest rate cutting campaign from pre-election meetings last Fall (a 50 basis points cut could find some legs too). I want to utilize the SPDR S & P 500 ETF Trust (SPY) to capture the potential for more additional new highs in the S & P 500. The Fed’s annual gathering of global central bankers and economists kicked off last night in Jackson Hole, Wyoming. However, investors were in a holding pattern awaiting Powell’s speech and his tone on his economic outlook. The last five trading days have been consecutive down days for the benchmark index, albeit small in aggregate of falling just 1.4%. Historically, Jackson Hole speeches by Fed chairs have often triggered significant market volatility. Remember that volatility brings markets down and also up. The CME Group’s FedWatch tool showed earlier this week that odds of a 25 basis-point rate cut in September had dropped from over 90% to roughly 60%. After the Jackson Hole speech, the probability is now back above 91%. Powell has endured strong pressure from the Trump administration regarding the economic need for imminent interest rate cuts. I don’t think he caved to President Donald Trump, I believe his dovish remarks were a reminder to investors that the Fed is data dependent and more importantly, independent of political influence. The concern for the job market seems to be paramount for the Fed. The trade (Risk reversal): Sold the 9/26/25 $635 SPY put for $6.00 Bought the 9/26/25 $650 SPY call for $7.00 This trade was executed when SPY was roughly trading $645 This spread costs an investor $1 or $100 This expiration date for this spread goes out past the Fed meeting, and break-even is at $651 which would be another new all-time high for the S & P 500. An investor must be prepared to own SPY at $646 in the event equity markets relent. DISCLOSURES: Kilburg is long SPY and owns this spread. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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