Approx 2 months ago – it felt like markets were starting to hedge their bets. How could I tell? Whilst the market was trading near record highs (around 6100) – momentum was fading. I commented on both the weekly MACD and RSI falling – whilst prices remained high. Technicians call this “negative divergence”. Quite often it suggests prices are at greater risk of easing. Since then they’ve dropped ~6%. The week ending March 7th was the worst week for the year and the third straight week of losses… more to come? I think so…
Fed Reserve
Actionable market insights delivered to your inbox weekly
Fed Minutes: Time to Pause QT?
Four things caught my eye with yesterday’s release of the January Fed Minutes: (i) worries over tariffs and their impact on inflation; (ii) some members suggesting the fed funds rate is now close to neutral (not the majority); (iii) concerns over the pace of balance sheet reduction targets; and (iv) inflation needing to come down more before lowering rates further. Makes sense to me… But I can’t help but wonder when Powell ran a victory lap last September – whether it was premature.
The Market’s Addiction
If you needed reminding the market remains closely tethered to monetary policy – we received it this week. Stocks surged on the back of two things: (i) CPI coming in slightly better than expectations; and (ii) the prospect of the Fed having more room to ease rates. Bond yields dropped and stocks jumped. There’s nothing quite like the sniff of cheaper money to get the animal spirits moving. However, it’s still far too premature to jump to conclusions.