Stock Market Positioned For 'Bad News Is Good News' – Data Ahead Will Determine 25 Or 50 Bps Rate Cut

Author: The Arora Report | September 08, 2025 10:24am

To gain an edge, this is what you need to know today.

25 Or 50 BPS Rate Cut

Please click here for a chart of SPDR S&P 500 ETF Trust (NYSE:SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• The chart of SPY is a monthly chart to give you a long term picture.
• The chart shows when the stock market broke out in June.
• The chart shows September is on track to be the fifth consecutive positive month.
• The chart shows the stock market is above the trendline.
• RSI on the chart shows the stock market is not overbought even given the gains since June.
• Important inflation data is ahead.  Producer Price Index (PPI) will be released on Wednesday at 8:30am ET.  Consumer Price Index (CPI) will be released on Thursday at 8:30am ET.
• We previously shared with readers that the probability of a rate cut in September is 99%.
• The inflation data this week will determine if the rate cut is 25 bps or 50 bps.
• Understanding positioning gives investors an edge.  Positioning is an important Wall Street mechanic. 
• In our analysis, Wall Street is positioned for "bad news is good news."  Even if there is bad news in the upcoming inflation data this week, Wall Street believes it will be a positive for the stock market because the release of the inflation data will lift the overhang.  
• What if the inflation data is much worse than expected?  Momo gurus already have an answer to run up the stock market – any increase in inflation will be temporary because the impact of tariffs will disappear in the next two or three quarters.

Japan

Stocks in Japan jumped on the resignation of Prime Minister Ishiba.  The reason is that the overhang from the defeat of the ruling party in the recent elections has lifted.  Stocks in Asia are jumping on positive sentiment from Japan.  The positive sentiment from Japan is being carried to the U.S.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. (AMZN), Alphabet Inc Class C (GOOG), Meta Platforms Inc (META), Microsoft Corp (MSFT), NVIDIA Corp (NVDA), and Tesla Inc (TSLA).

In the early trade, money flows are neutral in Apple Inc (AAPL).

In the early trade, money flows are positive in S&P 500 ETF (SPY) and Invesco QQQ Trust Series 1 (QQQ).

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (NYSE:GLD).  The most popular ETF for silver is iShares Silver Trust (NYSE:SLV).  The most popular ETF for oil is United States Oil ETF (ASCA:USO).

Oil

OPEC+ has decided to implement a production adjustment of 137K barrels per day from 1.65M barrels per day announced in April 2023.  Oil is jumping on the news.

Bitcoin

Bitcoin is range bound.

What To Do Now

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.  A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less.  Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.

Posted In: GLD SLV SPY