The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Breaking higher
Yields came in today and futures started rallying from flat around 8:30 AM. The S&P opened about +30 and diddle-daddled until 11 AM, at that point the tape rallied significantly and the index spent the rest of the day up about a percent. The rates market shifted greatly when it comes to the Sep 16th FOMC decision today. Current hike probability is 52%, down from 63% yesterday, which is a huge move. This was driven by dovish comments by Fed Governor Christopher Waller. Capital flow was light again at 87%.
Governor Waller said:
“If there is continued progress toward our 2% goal, then I am willing to support holding the policy rate at its current level, but if inflation comes in hot, I would consider a rate hike.”
This doesn’t strike me as dovish. This is a very matter of fact description of what we all suspected the Fed was thinking. The only issue up in the air is *how quickly* the inflation must fall to keep the Fed off the brakes. Until Warsh’s Jackson Hole speech, the recent rate of cooling was considered good enough. After Jackson Hole, the Street assumed that pace was too slow.
There’s no sense in arguing about whether the Street correctly or incorrectly interpreted Waller’s comments today. We’ll all find out on Sep 16. The thing we can focus on is that we just popped higher on the hope that the Fed would hold rates. That better turn out to be correct otherwise the market is likely to undo what it just did.
That said, the bulls just exerted control over the market again and yesterday’s bounce is carrying through today. The dip-buyers are preliminarily vindicated and this could be the start of a momentum play to make new highs (7817).
The risk is in tomorrow’s nonfarm payrolls (+55k est vs -23k prior).
That number could confirm the bounce as a new leg of the bull market or reverse everything and get the bears back in the game. I doubt the market quietly absorbs the info and twiddles its thumbs into the weekend.
See you tomorrow.
-Mike
Visdom Market Commentary
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