The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
No change, not bullish.
S&P futures were up small in the premarket. The S&P traded up anywhere from 10-20 points for the day until the FOMC decision and press conference. The index turned from intraday highs during the presser and went south from there. Treasury yields climbed across the curve during the same period and rate cuts for the rest of the year went from 45 to 36 intraday, a significant market reaction.
The FOMC statement had the usual trivial edits. The notable issue with the voting was that 2 voting members dissented, something not seen since 1993. That said, the market chatter ahead of time was for 2 dissentions. That was viewed as highly indicative of a 25 bip cut in September. Everything was going according to plan until the press conference.
The press conference wasn’t awful but Chairman Powell made no suggestions that September would likely bring a cut. Powell very plainly boiled the situation down as follows: the labor market is at target, the inflation rate is above target, *therefore* we should be in a restrictive rate environment and it’s not prudent to cut rates.
The content of Powell’s conference wasn’t objectionable and his conclusions are reasonable but the market didn’t like the tone and feel. Instead of going with the flow and permitting markets to bank on a rate cut in September (and another in December), Powell comfortably said he’ll wait and see and watch the data. This is no different than his many other press conferences but the market really didn’t appreciate the data-driven emphasis today.
To be honest, this is a lot of drama from the markets without much justification in my opinion. The Fed Chair actually mentioned a slowdown in growth, specifically consumer spending. This *normally* would suggest the Fed is sensitive to the downside risks and therefore is thinking about cutting rates. That *should* be considered dovish but that’s not how markets reacted. Maybe some investors began to think like that at the end of the day though, with the S&P recovering most of the afternoon losses.
At this point, we’re on to Mag 7 earnings and month-end. Let’s see what’s in store.
See you tomorrow.
-Mike
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