In what has to be one of the quickest rates of change in FOMC communication history, estimates have moved from 50, 50 and 50 for the next three meeting to 75, 75 and 50… and under 24 hours. All without the Fed saying a thing. The WSJ started the conversation, and many economists have jumped on, now markets just need to see of Chairman Powell comes through. The increase in expectation did little to offset nerves of traders today however. Producer Prices data was mixed sequentially (higher m/m, lower y/y), and after four very red days for the broader indexes, it appeared that traders were prepared to take some stock. But bear markets are prevailing, and Yields continue to price in the aggressive Fed, and therefore appetite for risk remains minimal. Treasuries fell once again, and the 2-yr is back to 2007 levels. Considering it was at 2.81% on June 9th, today’s closing yield of 3.437% shows how quickly the market is changing. Equities were a bit more steady today. The S&P 500 fell another 38bps (after losing 10% the last four sessions), but Nasdaq was able to gain 18bps. Transportation stocks outperformed after FedEx (+14.4%) raised their dividend and came to an agreement with activist DE Shaw. Staples lagged, led by Coca-Cola (-3.4%) on news they would delay their Coca-Cola Africa bottling public listing. Overall though, today’s lack of movement in the broader indexes felt more like an indecision ahead of the FOMC tomorrow. Volumes were still slightly elevated (+9% vs June average), and the breadth stayed negative for both the S&P and Nasdaq. So investors now have a half a day until they find out the Fed’s intention. Recession indicators are building, but not flashing yet. The Oil price remains high, University of Michigan dropped to its lowest ever, yields are close to inverting (2-10yr spread at 4bps), and the Leading Index on Friday is expected to drop for a third month in a row. Powell and the Fed have their hands full as they confront attacks on all sides, some of which they cannot control. It won’t be long until we see how the market responds to an aggressive Fed.
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