The gap between Main Street and Wall Street on stocks appears to be narrowing, with professional investors warming to the idea that the bull market still has room to run.
The average funding spread — a measure of institutional demand for long equity exposure through derivatives such as futures and options — rose by 20 basis points last week, hitting its highest level since December, according to market commentator The Kobeissi Letter.
While the increase may seem modest, it signals that institutional investors are positioning for further gains after weak job numbers pushed the Federal Reserve to cut rates.
“Overall, professional investor positioning has been gradually recovering since April,” The Kobeissi Letter said.
The shift comes as bond markets price in two additional 25-basis-point Fed rate cuts this year and three more in 2025 — a trajectory that would bring the federal funds rate below 3%, according to market strategist Charlie Bilello.
“After a brief hiatus, easy money is back,” Billelo said.
Historically, such conditions have fueled sustained stock market rallies — and early signals point to investors anticipating more upside, with the S&P 500, Nasdaq, and Dow Jones all hitting record highs last week.
Even so, analysts warn that one critical caveat could still derail the rally.
Politics or economics?
Despite the market’s initial cheer over Fed rate cuts, one risk looms large: investors may begin to believe the move was driven by political pressure rather than economic fundamentals.
That perception, according to David Kelly, chief global strategist at JPMorgan Asset Management, could undermine confidence in both U.S. financial markets and the dollar.
“To the extent that the Fed’s decision this week is seen as a capitulation to political pressure, a new layer of risk is being added to U.S. financial markets and the dollar,” Kelly wrote.
Similar concerns were raised by Bloomberg economist Anna Wong and Jim Bianco of Bianco Research, who argued the Fed’s latest move appeared inconsistent with its own forecasts.
“This meeting was a mess,” Bianco said of the latest FOMC gathering, warning that the cut looked more like “a political decision” aimed at placating President Trump.
Although the Fed prides itself on political independence, that reputation has been tested by President Trump, who has repeatedly called for aggressive rate cuts.
At one point, Trump pointed to Europe’s easing cycle as justification for immediate action. “Europe has had 10 cuts, we have had none. We should be 2.5 points lower and save billions on all of Biden’s short-term debt,” Trump said during the summer.
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