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Steady
Markets jiggled around a bit but didn’t do much as we await the FOMC decision tomorrow. The S&P 500 opened the session slightly offered, it rallied modestly midday, and fell back to flat in the afternoon. The yield curve began the day with lower rates but they climbed slightly over the day. Maybe the climb in rates cooled the enthusiasm for stocks, but that’s more guess than calculation.
The expectation for the FOMC decision tomorrow is a 25-bip cut. Fed Funds futures price it with a 90% certainty, which is a notable drop since yesterday. The financial press and talking heads all echo similar points, that the Fed will cut 25 bips but that it will be a *hawkish* cut. Supposedly, the Street expects the Fed to give little to no indication that more cuts will be coming in 2026. The expectation is for a lot of data-dependent explanations and a lot of the-committee-is-committed-to-its-dual-mandate guidance.
If Powell provides any guidance that strikes the market as dovish, markets are going to swing. The thinking is that stocks will climb while bonds drop. That’s all based on the markets expectations surrounding inflation risks.
If Powell does as expected, I’m not sure how markets will react. Considering the pressure in Treasuries, one would expect a bond rally. But what about stocks? Will a hawkish cut be encouraging to equity investors? It’s not a layup evaluation.
Regardless, once tomorrow’s decision and press conference are in the books and the dust has settled, I would expect bullish forces to show up until year-end. The year has been good for the longs. New highs are pretty close. Flows are going to net to the buy side and investors will be positioning for the next year in a well-established bull market.
See you Friday.
-Mike
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