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Since our last article, market expectations have shifted to favor a rate cut at each of the remaining FOMC meetings.

Gold has decisively broken out of an ascending triangle, with prices pushing higher in strong follow-through. The breakout confirms bullish momentum and underscores growing investor demand for the precious metal.

The Russell 2000 faces a major test at the $2,450 level, a resistance zone it has repeatedly failed to clear in the past. Each prior attempt has been followed by sharp pullbacks, reinforcing this level as a key ceiling for the index. A failure to break through again could trigger strong bearish sentiment.

The Nikkei 225 has been climbing within an ascending channel through the second half of the year. As it approaches the upper resistance band, a failure to break higher would reinforce the channel pattern and likely fuel bearish sentiment.

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Markets have wasted no time in accelerating expectations for monetary easing. Just days after our previous article, FedWatch now shows traders pricing in a rate cut at virtually every FOMC meeting through the rest of the year. This aggressive path reflects a growing sentiment that the Federal Reserve must move quickly to address cracks in the labor market. The surprise downward revision of 911,000 payrolls, paired with a spike in jobless claims, has reinforced the narrative of a cooling labor market. As Chair Powell noted, “The balance of risks appears to be shifting,” a clear acknowledgment that the slowdown in employment can no longer be dismissed.

Yet the rate-cut cycle may prove less straightforward than markets hope. Inflation remains sticky, complicated by new tariffs from the Trump administration. Powell has called these tariff-driven pressures “short-lived,” but they still cloud the data, making it harder to separate temporary shocks from underlying inflation. Meanwhile, U.S. consumption remains firm, with retail sales rising for a third consecutive month. This resilience gives businesses room to raise prices beyond input costs, knowing households can absorb them. In that context, looser financial conditions risk fueling stronger spending and magnifying the inflationary effects of tariffs, rather than offsetting them.

This policy bind is not without precedent. The Great Inflation of the 1970s serves as a reminder of how difficult it is to balance the Fed’s dual mandate when both inflation and employment are under pressure. While today’s environment is far less extreme, the lesson endures: cutting rates into sticky inflation risks repeating past mistakes. Premature easing in the 1970s reignited price pressures instead of containing them. At the same time, trade uncertainty continues to drag on capital expenditure and manufacturing. Investment in infrastructure and materials has stalled, and recent factory gains remain modest—clear signs that lower rates alone may not be enough to counter deeper structural headwinds.

Equity markets, however, remain firmly focused on the upside. Lower rates have propelled indices to fresh highs, with the Russell 2000 nearing its record on expectations that small-caps benefit most from cheaper credit. This optimism has been amplified by excitement around artificial intelligence and, just as importantly, by sheer relief: after a year dominated by tariff escalations and geopolitical tensions, investors appear exhausted and eager to embrace any positive catalyst. Yet history warns against complacency. September has often proven to be the weakest month for equities, the so-called “September effect,” as seasonal pressures combine with thin liquidity and profit-taking. If this seasonal headwind converges with disappointment on policy or geopolitics, the very easing fueling today’s rally could just as quickly unwind it.

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We conclude with the following hypothetical trades:¹

Case study 1: Short E-mini Russell 2000 Index futures

If one holds a bearish view of E-mini Russell 2000 Index (RTY) futures, one could consider taking a short position in Russell 2000 Index at the current price of 2,425 with a stop-loss above 2,460, a hypothetical maximum loss of 2,460 – 2,425 = 35 points. Looking at Figure 3, if the re-test fails again, Russell 2000 Index could fall back to previous consolidation zone of 2,150, resulting in 2,425 – 2,150 = 275 points. It could even potentially fall to major support level at 1,650, resulting in 500 points. Each point move by the E-mini Russell 2000 Index futures contract is 50 USD. Micro E-mini Russell 2000 Index futures contract is also available at 1/10 of the E-mini size.

Case study 2: Short Nikkei 225 (USD) Index futures

If one holds a bearish view of Nikkei 225 (USD) Index futures, one could consider taking a short position in Nikkei 225 Index at the current price of 44,750, with a stop-loss above 45,250, a hypothetical maximum loss of 45,250 – 44,750 = 500 points. Looking at Figure 4, if the breakout fails, Nikkei 225 Index has the potential to reach 42,500, resulting in 44,750 – 42,500 = 2,250 points. Each point move by the Nikkei 225 (USD) futures contract is five USD. Micro Nikkei 225 (USD) Index futures contract is also available at 1/10 of the standard size.

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¹ Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.

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