Early Signs of a Broad Market Rebound: What the Small Gains in S&P 500 and Nasdaq Futures Reveal About Investor Sentiment and Positioning

The S&P 500 and Nasdaq Composite have entered a pivotal phase in 2025, with both indices notching record highs amid a complex interplay of technical strength, shifting investor sentiment, and Federal Reserve policy expectations. While the gains—11% and 13% year-to-date, respectively—appear modest in the context of a decade-long bull market, they reveal deeper dynamics at play. These include a fragile balance between optimism over rate cuts and lingering concerns about inflation, labor markets, and the sustainability of AI-driven growth.

Technical Strength Amid Mixed Sentiment

From a technical perspective, the S&P 500 and Nasdaq have shown resilience. The S&P 500's 14-day RSI of 69.71 as of September 16, 2025, suggests a balanced market, neither overbought nor oversold, while its 50-day and 200-day moving averages remain in bullish alignment S&P 500 Index 14-Day RSI History & Chart Since 1974^[1]. The Nasdaq Composite, meanwhile, has surged above key resistance levels, with its 50-day moving average rising 9.41% year-to-date and its 200-day average up 17.21% Nasdaq Composite Technical Analysis - Barchart.com^[2]. These metrics indicate sustained momentum, particularly in the technology sector, where AI stocks like NVIDIA and Microsoft have driven much of the gains.

Yet, investor sentiment tells a different story. Despite the indices' record closes, bearish sentiment among individual investors hit a six-month high in early September, driven by fears of a slowing labor market and the potential inflationary impact of Trump-era tariffs Stock Market Today: S&P 500, Nasdaq, Dow Futures Rise^[3]. This duality—technical strength versus psychological fragility—is a hallmark of markets navigating macroeconomic uncertainty. The CNN Money Fear & Greed Index, however, offers a glimmer of optimism, moving into the “Greed” zone at 57.7 on September 16, 2025, as the Nasdaq gained over 200 points ahead of the Fed's policy decision Nasdaq Gains Over 200 Points Ahead Of Fed Meeting^[4].

The Fed's Role in Shaping Market Psychology

The Federal Reserve's September 2025 rate cut—a 0.25% reduction to 4.0%–4.25%—has been a critical catalyst. As stated by the FOMC, the move was aimed at addressing a “softening labor market” and moderating inflation, which remains near 3% September 17, 2025: FOMC Projections materials^[5]. While the cut has bolstered growth-oriented sectors like technology and consumer discretionary, it has also introduced headwinds for financials, which face narrower net interest margins.

The Fed's pivot has also reignited debates about the durability of the current bull market. Historically, September has been a volatile month for equities, with the S&P 500 averaging a -4.2% decline over the past five years Monthly Market Update | September 2025^[6]. Analysts warn that the market's reliance on rate-cut expectations could lead to a rotation into “less-stretched” sectors, such as utilities or consumer staples, as investors hedge against potential overvaluation in AI-driven tech stocks.

Volume and Momentum: A Test of Conviction

One of the most telling signs of a market rebound is whether price gains are supported by rising trading volume. For the Nasdaq 100, the data is mixed. Between September 9 and September 16, 2025, the index surged from 23,839.80 to 24,342.75, with trading volume increasing from 7.88 billion to 8.59 billion shares NASDAQ-100 (^NDX) Historical Data^[7]. This suggests growing conviction among buyers, though the 14-day stochastic reading of 94.22% indicates the index is nearing overbought territory, raising the risk of a near-term pullback Nasdaq 100 E-Mini Sep '25 Futures Technical Analysis^[8].

For the S&P 500, volume trends are less definitive. While index options volume spiked 31.39% year-over-year on September 9, 2025, the broader market remains dependent on institutional buying rather than retail-driven momentum SPX Volume (Market Daily) - United States^[9]. This divergence highlights the fragility of the current rally, which is more reliant on macroeconomic tailwinds than broad-based demand.

The Road Ahead: Balancing Optimism and Caution

The coming weeks will test whether the S&P 500 and Nasdaq can sustain their gains. Key risks include the release of inflation data, which could force the Fed into a more hawkish stance, and the potential for a “sell in May” exodus as institutional investors rebalance portfolios. However, the technical underpinnings of the market—particularly the Nasdaq's break above the 22,000–22,200 resistance zone—suggest that the bull case remains intact for now NASDAQ 100 Forecast & Price Predictions September^[10].

Investors should also monitor the interplay between AI sector valuations and broader market fundamentals. While the MIT study questioning the immediate profitability of AI implementations has raised red flags, the long-term potential of the technology remains a tailwind for innovation-driven stocks. As one analyst put it, “The current market is a tug-of-war between the promise of AI and the reality of macroeconomic headwinds.”

Conclusion

The S&P 500 and Nasdaq's recent gains reflect a market in transition, balancing technical strength with psychological fragility. While the Fed's rate cut and AI-driven optimism provide a floor for equities, the risks of overvaluation and macroeconomic volatility cannot be ignored. For now, the indices' ability to hold key support levels and attract buying volume suggests a cautious case for further gains—but investors would be wise to remain vigilant.