Société Générale expresses concern about a potential bubble if the S&P 500 surpasses 7500. The forecast suggests the index could reach 6,900 by the end of 2026, with a potential range of 6,500-7,250 if re-rating occurs in a rate-cutting environment.

The potential rise is attributed to factors like lower oil prices, a legislative measure termed “The One Big Beautiful Bill”, and reduced regulations. Additional contributions include global fiscal spending, duplication of supply chains, and growth in nominal earnings per share.

Predictions for the Us Dollar

Société Générale also anticipates the US dollar to weaken, predicting the EUR/USD to reach 1.2. They indicate this weakening might persist until Federal Reserve rates are in the 3% range or the yield curve is closer to 100 basis points.

Given the current market standing on August 4, 2025, the analysis suggests the S&P 500 rally has further to run. The index is hovering around 6,850, making the year-end target of 6,900 seem well within reach. For the coming weeks, the path of least resistance appears to be upward, driven by expectations of continued economic support.

We should consider buying call options on the S&P 500 to ride this momentum, especially with the VIX holding low around 14. These expectations are supported by the Federal Reserve’s recent shift to a rate-cutting cycle, with the federal funds rate now at 4.25%. Fiscal tailwinds, like the recently passed American Innovation and Infrastructure Act, also provide a strong floor for equity prices.

However, the warning of a bubble above 7,500 means we must plan for an eventual reversal. We should purchase out-of-the-money put options with later expiration dates to protect our long positions from a sudden downturn. This strategy acts as cheap insurance, similar to what we saw in the market melt-up of late 1999 before the correction in 2000.

Strategic Trade Opportunities

Another key trade focuses on the weakening U.S. dollar, which is a direct consequence of the Fed’s policy. With EUR/USD currently trading at 1.17, the forecast of 1.20 appears imminent. We can use currency futures or options to position for further dollar weakness against the euro in the near term.

The environment is one of riding the wave while setting up safety nets. A good approach for the next few weeks is using bull call spreads to profit from a measured rise toward the 7,250 level while limiting upfront cost. This strategy balances the positive outlook with the underlying caution about the market becoming overextended.

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