..the most highly awaited FOMC ended with a whimper, despite the Fed boldly and appropriately delivering the 50bps cut, equities and Gold initially shot up with excitement but ended the day with declines as the market may have interpreted Powell's conference statement as pouring cold water on pace of future rate cuts, perhaps the 50bps cut was 'politically motivated' OR the market not believing Powell's 50bps action is not in response to higher prospects of recession ahead, despite him clinging to the soft landing narrative.
* Dow was a whisker away from 42k but ended at 41,503 lower by 103pts at the close, while Gold hit an intraday high of $2600 before edging down sharply to $2559. It was the case of selling after the fact, DXY recouped losses to close at 100.94
* Silver rose to $31.23 and fell sharply to $30.07 ; silver stocks tanked SIL -1.66% SILJ -1.82% as did gold stocks GDX and GDXJ fell -1.09% and -1.69% respectively
* Oil stocks a tad higher with XLE +0.19% , bank stocks a tad lower with XLF -0.31%
* Lithium stocks declined notably: LIT -1.18%, ALB -3.6%, SQM -1.99%, LAC -3.31%, Patriot Battery -10.99%, Arcadium 0%
* Worth nothing that:
Last 2 times the Fed’s first cut was 50+ bps:
Jan 3, 2001 - S&P 500 fell ~39% next 448 days - Unemployment rose another 2.1% - Recession
Sep 18, 2007 - S&P 500 fell ~54% next 372 days - Unemployment rose another 5.3% - Recession
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50bps cut... uber-dovish Dots... Powell pushed back... stocks end red, dollar and yields end higher. “The US economy is in a good place and our decision today is designed to keep it there,” said Fed Chair Pay Powell during the press conference.
So a crisis-level 50bps rate-cut at record highs for stocks and home prices, just two months ahead of the election is warranted because the "economy is in a good place."
The kneejerk reaction across all markets reversed considerably during Powell's presser as he poured a little cold water on expectations. "The committee is not in a rush," said Powell, and with that stocks started to puke lower as he added that "we will move as fast or as slow as we think is appropriate."
Powell stole the jam out of the equity market's donut when he tilted hawkish by noting that "no one should look at the 50bps cut and say this is a new pace."
But realistically, the DOTs said it all, with members desperately lurching lower in rate-cut expectations.
In June, 4 FOMC members expected no rate-cuts in 2024, 7 members expected 1 rate-cut in 2024, 8 members expected 2 rate-cuts.
In September, only 2 FOMC members had priced in 2 rate-cuts by year-end, 7 more saw 3 rate-cuts, 8 more saw 4 cuts by the end of 2024 and one lone uber-dove (Goolsbee?) expected 5 rate-cuts in 2024...
Source: Bloomberg
And Fed rate expectations for 2024 tumbled (and 2025 dropped too - though was already pricing in a super dovish Fed)... Source: Bloomberg
Additionally, Powell pissed in the punchbowl by stating that we’re probably not going back to the era when trillions of dollars worth of sovereign bonds were trading negatively and says the neutral rate is probably much higher than it used to be - but doesn’t know where that level is.
So let's survey the damage...
Stocks kneejerked higher with Small Caps exploding almost 2.5% at their highs on the FOMC statement and SEP. The S&P 500 also briefly hit a new record high. However, once Powell started speaking, all the majors reverted lower (back into the red)...
The footprint of Small Caps pump and dump was very evident in the 'most shorted' basket today... Source: Bloomberg
The Dollar Index puked bigly on the FOMC statement but rallied all the way back as Powell spoke... Source: Bloomberg USDJPY may help clarify the flip-flop as FX markets start pricing in the next US inflation surge as the yen spiked on the FOMC statement then puked hard on Powell's prevarications... Source: Bloomberg
Gold exploded up to a record high $2600 before sliding back as Powell spoke... Source: Bloomberg
Bonds and stocks remain in world's of their own still since the last FOMC meeting in July - stocks slightly higher (no recession, soft landing), bond yields down dramatically (recession, hard landing)... Source: Bloomberg
Treasury yields all tumbled on the FOMC statement and pushed back higher as Powell spoke.The 2Y remained lower (unchanged on the day) while the long-end rose 7bps on the day! Source: Bloomberg
The yield curve (2s10s) crashed into 'inversion' briefly before bear-steepening back up to recent highs... Source: Bloomberg
Bitcoin kneejerked up above $61,000 before sliding back to unchanged on the day... Source: Bloomberg
Crude prices declined on the day, whipsawed around by the DOE dats showing a big draw at Cushing and then by Powell and his pals going full dove-tard! Source: Bloomberg
Finally, will Powell's legacy be that of Arthur Burns?
Source: Bloomberg
