{"id":212117,"date":"2024-09-19T12:15:00","date_gmt":"2024-09-19T16:15:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=212117"},"modified":"2024-09-23T11:08:24","modified_gmt":"2024-09-23T15:08:24","slug":"mr-market-jerome-powell","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/mr-market-jerome-powell\/","title":{"rendered":"Mr. Market\u00a0\u2764\ufe0f Jerome Powell"},"content":{"rendered":"\n

By mid-morning I\u2019d already been asked multiple times about whether this morning\u2019s stellar rally is warranted and\/or sustainable.  Coming on the heels of a minor \u201csell the news\u201d decline after Chair Powell\u2019s post-FOMC press conference, the turnaround is quite dramatic.  In light of my frequent assertion that \u201ctraders react while investors consider\u201d, investors consider yesterday\u2019s rate move to be quite favorable.<\/p>\n\n\n\n

Heading into the number I thought that a 25-basis point cut was necessary \u2013 grudgingly — simply because Powell told us to expect a cut.  Even though I remained convinced that 25bp was what they should have done, I had no choice but to respect the market after the  Wall Street Journal\u2019s <\/em>resident Fed whisperer wrote an article<\/a> that implied a 50bp was in the cards.  The only plausible explanation for that news report was that someone \u2013 potentially Powell himself \u2013 wanted that message out there during a pre-FOMC quiet period.   <\/p>\n\n\n\n

So, the market got the cut that most people expected.  It was interesting to see the phrase \u201cbalance of risks\u201d appear twice in the third paragraph of the FOMC statement<\/a>, hammering home the point that after years of being focused primarily on the \u201cstable prices\u201d portion of their dual mandate<\/a>, they are now quite concerned about the \u201cmaximum employment\u201d portion as well.  Perhaps the only dose of cold water that Powell offered was his insistence that markets should only expect 25bp cuts in the near future.  Though that statement might have precipitated yesterday\u2019s \u201csell the news\u201d dip after 7 straight up days for the S&P 500 (SPX), markets have already begun to ignore that message and expect roughly 90bp in cuts for the next two meetings. <\/p>\n\n\n\n

Today\u2019s rally started when investors in Asia decided that the rate cut was indeed good news.  A key factor could quite possibly be that it caused the yen to weaken, taking pressure off of what is left of the \u201ccarry trade\u201d.  The Nikkei 225 closed up more than 2%, after trading about 3% higher during the session.  Since then, the yen has given back the bulk of its losses versus the USD ahead of tonight\u2019s Bank of Japan meeting.  The market is not expecting a rate hike \u2013 remember, a 25bp hike at their last meeting triggered the carry trade implosion \u2013 but we need to watch the outcome nonetheless. <\/p>\n\n\n\n

Once the positive tone for stocks was set, US traders resumed their strategy of chasing every rally.  And so far, investors haven\u2019t decided to contradict them.<\/p>\n\n\n\n

This rally feels like a bit of a sugar rush, but the longer and further that it persists, the more lasting it seems.  Quite frankly, it is easier to accuse the Fed of stoking an already adequate fire with more fuel.<\/p>\n\n\n\n

Despite protestations that monetary policy is restrictive, there are few real-world examples that it is indeed the case.  Stock markets at all-time highs, bond yields near multi-year lows, few if any signs of a credit crunch that is hindering borrowers, and rallies in speculative assets like crypto, all bias against that narrative.  The FOMC\u2019s Summary of Economic Projections shows median expectations for 2% Real GDP growth (the Atlanta Fed\u2019s GDPNow<\/a> estimate is 2.9% for the coming quarter) and a 4.4% Unemployment Rate for the coming two years.   Heck, if the Fed is inclined to make moves to make policy more accommodative even as they project data that would imply a \u201csoft landing\u201d, equity investors will like that idea immensely.  And they do, at least today.<\/p>\n\n\n\n

Looking forward, and wondering what might upset the rosy mood, there are frankly few catalysts other than the market\u2019s own inertia:<\/p>\n\n\n\n