Every market rally this year has been driven primarily by hope that the Fed was about to become less hawkish. We had another illustration of this today as the indices recorded significant gains.
Nick Timiraos from the wall street journalwho is considered an unofficial spokesman for the Fed, wrote that the Fed’s next meeting on Nov. 2 would “serve as a critical baseline for future plans, including whether and how to get down to 50 basis points in December.”
That was all it took to attract stock buyers, but the bond market was not so optimistic. Bonds sold off very aggressively at the start of the day, but rallied a little after talk of a Fed pivot started to heat up. The bond market ended up closing again on new multi-year lows.
Talk of a Fed pivot helped the market shrug off some lackluster earnings and set the stage for the meat of earnings season over the next two weeks. A number of key stocks will report next week and determine how much the market can build on today’s rally.
The recent trend has been for the market to bounce on hopes of a Fed pivot, then give back all the gains and more when there is new data or information that clearly indicates that inflation is not slowing as hoped. This has happened several times recently, but bulls love trying to call market lows in the hopes that the Fed will be their friend again.
The bulls have juice to run until the Fed meeting, but the Fed faces a dilemma. She doesn’t want the market to be too euphoric, because that would undermine her fight against inflation. A strong stock market will help keep inflation high. The Fed is not suddenly going to become dovish. It will continue to raise rates, albeit perhaps at a slower pace.
The Fed is now in a blackout period until the November meeting, so we won’t have anyone trying to pull the market back, but there will be continued speculation about how much the Fed has already slowed down. economy with its politics.
Conditions are good for some upside to continue but again I have to write that this is a bounce not a bottom until there is a sustained improvement in technical action.
Have a good week-end. I will see you tomorrow.
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