The market girds itself for possibly the most meaningful week of the year.
With stocks at all-time highs, can the market keep the rally going? We will know soon. Not only do we have a “guaranteed” tomorrow, we also get a very important on Thursday, and have a massive $4.9 trillion in options expiring on Friday. All will have a meaningful influence on the overall market.
The bruised bears are sure that the Fed cut, with still far from their 2% target, will be a “sell the news” event, being a sign of a slowdown concern by the Fed over weaker employment. The employment data has been a concern, but it certainly has not translated to weaker earnings so far. The huge option settlement could easily cause big short-term moves that have little to do with long-term fundamentals.
The major indexes are sagging a bit this morning, and the VIX has climbed to a 2-week high of 16.1. Interest rates are flat, with the short end inching down slightly. The bet on a 50bps cut tomorrow has faded to 2%, while the bets on sequential quarter point cuts at the next 3 Fed meetings (Sep/Oct/Dec) are firm at 70%. Prospects for a positive yield curve anchored well above deposit rates have driven the major commercial bank stocks to highs. The lower rates on the way have driven the to a 4-year low of 96.3
On the commodity front, gold and continue to march to new long-term highs. remains well off its pre-tariff high. has risen above $64/bbl on the back of Ukrainian drone attacks on Russian ports and refineries, raising energy stocks 1%. Natural gas is flat at $3/mcf. Crypto is flat with Bitcoin at $115.2K where it’s been for a week, rallying with stocks from $108K at the end of August.
With stocks already at levels forecast earlier in the year for year-end, the Fed’s comments on tomorrow’s rate cut will be key to near-term movements. If Powell characterizes a series of cuts coming due to serious concerns about employment trends, there will likely be some downside volatility. If he speaks in terms of getting closer to a neutral rate, we may see new highs.
Away from the Fed, we are seeing record share buybacks, IPOs up 50% for the year, and no wavering in the AI narrative. The trend remains positive, and even if the cut tomorrow turns into a sell-the-news event, the buy-the-dip trend will limit the damage and be boosted by flows out of money market funds looking for better yields for the bal
Guaranteed Fed Cut Looms as Markets Debate Buy the Dip Vs. Sell the News
