The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Uptrend
CPI (2.9% vs 2.9% est & 2.7% prior) was as expected. S&P 500 futures were up about 13 points at the release and after some shake-and-bake price action, the futures returned to +13 as we awaited the open. The intraday rally began shortly after the open and didn’t lose steam until lunch. The index treaded water around +50 for the rest of the session. Capital flow was healthy at 112% and the bull market continues unphased. The index printed fresh all-time highs today and the S&P is up about 12% year to date. Yields fell a handful of bips across the Treasury curve and FOMC expectations continue to price 25-50 bips for Wednesday.
The inflation picture isn’t ideal but for equity investors it no longer impedes the rally. The Fed has no meaningful tension to balance between inflation and the jobs market. The scales are clearly showing that rates should come down to ease financial conditions. For stocks, this is a nice big green light, and markets climbed accordingly.
The next big event will be Wednesday’s FOMC decision. While futures markets price a 25-bip cut with 91% certainty and a 50-bip cut with 9% certainty, economists are less dovish. Of 64 published estimates on Bloomberg, 55 expect a 25-bip cut and 9 expect *no* change in the rate. It certainly seems like 25 bips will be the outcome and so we play the waiting game.
Chairman Powell’s press conference will be more significant for the bull market than the release itself. Stock investors already expect to read about 25 bips. They want to judge the tone and outlook of the Fed before the extend the trend or book gains and risk-reduce.
It is likely that Powell says the things that keep outlooks positive and sentiment optimistic. Only if he, and the Committee, is privy to some awful data that the market doesn’t yet have, could the bears have a field day. Anything is possible of course, but that is quite a longshot.
So the coast is clear until Wednesday and if you think Powell will say all the right things, you buy now… and buy tomorrow, and buy next week.
And I think that’s what we’ve seen and will see.
See you tomorrow.
-Mike
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