Last Tuesday's CPI number sent a jolt through the markets and had pundits talking up a 1% rate hike come this Wednesday. While such odds immediately popped higher (pricing in a 34% chance) in Fed funds futures, they've calmed back down since to a roughly 21% chance as I type.
The fact that the possibility of a 1% rate hike is out there, and that equity markets got pounded last week, and that the likes of Nomura says it's going to happen, well... lo and behold, suddenly a .75% rate hike may indeed spark a rally... Depending of course on how J. Powell handles Wednesday's presser.
Also offering support for a rally happens to be a sentiment setup that leans contrarianly bullish at present.
Our own "Fear/Greed Barometer" (consists of the VIX, individual investor sentiment (AAII weekly survey), adviser sentiment (Investor Intelligence weekly survey), short interest, futures speculators positioning and the put/call ratio) currently scores 33.33, up 11 points from last week. A positive number denotes net fear among market participants. Which is a net bullish setup... as it implies that there's some significant demand in the offing, should a little good news hit the tape...
Now, before you take that last paragraph and run (into stocks) with it, keep in mind, we’re in a bear market, and like (as I suggested in a recent video) bullish short-term technical setups, other otherwise bullish setups (such as a high fear reading) are prone to failure as well… during a bear market.
In any event, a 1% rate hike would likely send yet another jolt through the market, without, that is, Powell seriously walking back future hike potential in his post meeting appearance. While, again, .75% could see stocks in the green, without, that is, Powell talking up aggressive future rate hikes...
That message from Fed Ex last week should, frankly, have gotten the Fed's attention... And, recall, our own PWA Index presently scores a -9, which means recession risks presently prevail... So I'm guessing .75%, but don't hold me to it...
Here's on Fed Ex last week:
FedEx said Thursday it is shuttering storefronts and corporate offices while putting off new hires in a belt-tightening drive brought on by drop-off in its global package delivery business.
The company based in Memphis, Tennessee, warned it will likely miss Wall Street's profit target for its fiscal first quarter that ended Aug. 31. And it said it expects business conditions to further weaken in the current quarter amid weaker global volume.
"Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S.," FedEx CEO Raj Subramaniam said in a statement. "We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first-quarter results are below our expectations."
"High operating expenses were also a drag on the company's results, FedEx said. In response, it said it will cut costs by closing over 90 FedEx Office locations and five corporate offices, deferring new hires and operating fewer flights."
Now, all that said, let's not lose sight of the fact that there's also the services side of the economy, and that it makes sense that the covid-induced-spending-on-goods-extravaganza was bound to come way off the boil.
For now, the evidence suggests folks are still spending, but more so on experiences, as opposed to exercise equipment...
Asian equities were mostly lower overnight (Japan's mkt was closed), with only 3 of the markets we track closing higher.
Same for Europe so far this morning as well, with 17 of the 19 bourses we follow trading down as I type.
US stocks continue to selloff: Dow down 182 points (0.59%), SP500 down 0.60%, SP500 Equal Weight down 0.86%, Nasdaq 100 down 0.52%, Nasdaq Comp down 0.57%, Russell 2000 down 0.36%.
The VIX sits at 27.44, up 4.33%.
Oil futures are up 2.57%, gold's down 0.56%, silver's down 1.25%, copper futures are down 0.71% and the ag complex (DBA) is down 0.63%.
The 10-year treasury is down (yield up) and the dollar is up 0.23%
All of our 35 core positions (excluding options hedges, cash and short-term bond ETF), save for the put hedges of course, are trading lower to start the session. -- the least bad so far are cyber security stocks, AMD, defense stocks, treasury bonds and MP Materials. The biggest losers are energy stocks, Sweden equities, healthcare stocks, emerging market equities and Eurozone equities.
"By raising and lowering supplies of money and credit, central banks are able to raise and lower the demand and production of financial assets, goods, and services."
--Dalio, Ray. Principles for Dealing with the Changing World Order
Well, that's indeed what they're counting on right here!
Have a great day!