Analysts: The Federal Reserve's interest rate cut in September is almost certain, and options traders expect the US stock market to run smoothly

With a September Federal Reserve rate cut all but certain, options traders are widely betting on a stable stock market ahead of Thursday's CPI data. However, this bet could be risky if the data shows rising inflation. The market's rationale for a rate cut is straightforward: US job growth is stagnant and the economy needs stimulus. Friday's weak jobs data reinforced this expectation, prompting investors to fully price in a 25 basis point rate cut from the Fed next week. The market's reaction has been muted: US stocks fell slightly on Friday, and the fear gauge edged up slightly, but remains well below the critical 20 level, where it has mostly remained since June. Looking ahead, options traders are betting on a two-way swing of about 0.7% for the S&P 500 following Thursday's CPI release, below the average realized swing of 1% over the past year. However, this trade ignores a key risk: what if inflation data significantly exceeds expectations? "The balance is very delicate right now," said Eric Teal, chief investment officer at Comerica Wealth Management. "Any data that is very positive or very negative could change the market outlook." (Jinshi)