The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
US involvement.
Futures dropped some overnight and the S&P 500 opened -20. Mid East headlines showed continued fighting between Iran and Israel, perhaps spooking the investors that thought things would be ending rather than continuing. Treasuries saw a small flight-to-quality in the morning, which increased over the day. In the middle of the day, President Trump left the G7 conference to better deal with the Israel/Iran conflict from D.C. This action caused equities to drop further and subsequent tweets accelerated the selling. The tweets from the President suggest that the US will become significantly more involved in the conflict, if it isn’t already. The S&P spent the last couple hours down about 50 points.
Despite the risk of increased US involvement in the Israel/Iran situation, investors were quite calm about the circumstances. Maybe investors view the President’s tweets as hot air or that Iran is on the verge of surrender. I’m not sure but the market certainly doesn’t think things are going to go badly. It’s a bold projection but who knows?
Given the cool and collected temperament of markets, it seems the big thing on the horizon is the next FOMC decision. The announcement and statement release tomorrow at 2 PM and the presser starts 30 minutes later. Like past meetings, the market expects no change in policy rates with near unanimity. Futures price a 0.1% chance of a cut and 95 of 95 published estimates on Bloomberg all project no change in rates.
The FOMC decision is expected to be a true non-event. The chatter concerns the press conference and Chairman Powell’s tone and implications. The Street is wondering what he will say about the President’s comments about rate policy, Powell’s position as Chair, successor speculations, and the attitude of the Committee given the President’s public jawboning.
Since there is no expected policy change, there is no clear consensus market view. Some are arguing for a dovish hold and some are expecting a hawkish hold. Good luck guessing how the market will/should react as Powell speaks tomorrow.
I don’t think we’ll get much volatility tomorrow afternoon but we’ll have to wait and see. Powell will likely say the same old same old about data dependent and watching the data and being ready to do whatever they need to do in service of their dual mandate. Whether investors jump in or out of the market as he rattles off those statements is anyone’s guess.
See you tomorrow.
-Mike
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