Eight months down. Four to go. After shedding almost ~10% to start the month – the bulls managed to close the market at its highs. Whiplash anyone? The S&P 500 is back to the point where the markets panicked on a growth scare – however it raises a question: (i) can it break through previous resistance (the all-time high of 5669); or (ii) will it perform what traders call a “back and fill”? My guess is the latter – as we head into one of the weaker months of the year.
"Interest Rates / Bonds"
Powell Takes a Victory Lap
Fed Chair Powell didn’t disappoint at Jackson Hole – giving the market what it wanted to hear… rate cuts are coming. All that remains how many and by when? That’s not something Powell was ever going to offer (why remove optionality) – but the market is willing to bet we receive at least three cuts by year’s end. All eyes now turn to two major economic reports: (i) PCE due Aug 6 and (ii) Aug nonfarm payrolls due Sep 6. For e.g., if Augusts payrolls are similar to June’s (where only 114K jobs were added) – we could see the Fed cut rates 50 bps come Sept. What signal will that send to the market?
It’s Not Only Falling Inflation & Growth Risks Driving Rate Cuts
As inflation continues to moderate and the employment picture weakens – markets are trying to gauge just how much the central bank will move. A 25 basis point (bps) cut for September is now a 100% probability according to CME Group’s FedWatch tool. There’s a 63.5% chance of a 25 bps cut; and 36.5% of a 50 bps cut. Markets clearly want 50 bps… but they also know that very rarely is there just “only one rate cut”. This post explores the relationship between debt growth (across all sectors) and the overall trend for interest rates. It’s a relationship which is not often discussed – but would be remiss of investors to ignore.
Fear & Greed
Wall St. is driven by just two emotions: fear and greed. Pending on the degree to which you succumb to these emotions – it will have a profound impact on your bottom line. All too often, most investors will do two things: (i) buy when there is market greed; and (ii) sell when there is fear. It’s the opposite of what you should do. However, this is something you need to master if you are to be successful in the game of asset speculation.
For a full list of posts from 2017…