S&P 500 wavered in the triple witching open (allowing for early intraday short calls), and then the retracement higher almost all the way till the close, ruled – except for the action before the very closing bell. What could be behind that, and does it carry implications for stock prices ahead?It‘s one more day of digesting not just the 50bp cut catching most off guard, but also about the rate cut path (full dot plot till end of 2025) ahead. Just as I warned the preceding weekend about bond prices being vulnerable to decline, so it (the degree of rate cutting expectations) is manifesting in the not 250bp but merely 200bp till Dec 2025 expectations now.Also as regards November, there is almost a 50% chance of 50bp cut, but I‘m not jumping the gun to predict it now as done deal, but it sounds more likely than 25bp. Powell‘s focus will turn increasingly to the job market – after the recent massive adjustments on the job creation side for practically all of 2024, I think the next couple of weeks as a minimum would feature good news on the unemployment claims front (meaning less than 250K initial claims) as we‘re entering a seasonally stronger few months, and consumer discretionaries chart has also a message to say. Still, markets will demand another 50bp cut in Nov..Yield curve uninversion and recession? No, not this year, I still don‘t think so.Let‘s have a look at yields and what the put to call ratio is saying about risk taking in general. Yes, the yen looks tame at the moment, no danger to the carry trade, it had weathered the cut very well.
So, the next days and weeks will be about adjusting to the slightly more likely reality of only 25bp Nov cut (60% odds for now) – and the great trades called in the run up to the start of rate cutting, will temporarily just consolidate steep gains in, with ITB, XLI and IGV to name just three, standing out.More By This Author:Gold, Silver Or EquitiesShort Squeeze, Anyone?When XLF Rotation
