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#Macro – $SPX, #Rates, #CPI
- RTM Reaction: FOMC Minutes
- RTM: Getting Ready For CPI
- RTM: Stocks Are Near Or At Key Resistance Level
- RTM: Market Dislocation
- RTM: Yield Curve Likely To Steepen Further Following Job Report
- RTM: Waiting For Jobs
- RTM: Earnings Season Is Likely To Be Very Important As 2024 Comes Into View
A very slow day for stocks, with the S&P 500 trading basically inside yesterday’s range and finishing the day higher by around 40 bps. For now, at least the highs from yesterday held despite the index gapping higher today. It seems that we may merely be waiting on the CPI report that is due to come tomorrow at 8:30 AM ET. The estimates are for a m/m increase of 0.3%, down from 0.6% in August, while rising by 3.6% y/y, down from 3.7% in August. Core CPI is expected to climb by 0.3%, in line with August, while falling to 4.1% down from 4.3%.
CPI swaps are pricing a 3.55% increase in the headline y/y change, basically in line with analysts’ estimates.
At day’s end, the S&P 500 straddle was only pricing in a 75 bps move by the end of the day tomorrow, which doesn’t seem like much given the inflation report. Perhaps that is becuase the Fed minutes today implied that the Fed is probably done at this point. There is always a chance for one more rate hike, but from reading through the minutes, it sounds like the odds favor them being finished hiking rates, barring a surprise.
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It seems that the Fed is content with policy where it is; instead, it is shifting its focus on the length of time that rates will remain at these levels. Which I would imagine is going to be high for some time. Of course, that will depend on the neutral rate of the economy and whether the policy is restrictive enough. Based on the minutes, it doesn’t seem clear they actually know what the neutral rate of the economy is, and at this point, they seem to be feeling their way through a very dark room. Given that the Fed has raised rates about 550 bps over the past 18 months and real GDP in the third quarter is expected to advance by a real 4.9% and 8.9% nominal rate, I find it hard to believe the Fed is resistrictive enough.
Meanwhile, stocks rallied a bit after the minutes’ release. However, the index could not surpass yesterday’s highs and could only get back to its early morning highs. So, at least at this point, we have a 78.6% retracement of yesterday afternoon’s sell-off, and today’s late rally could be a 78.6 extension off of the 2 PM ET lows. So tomorrow’s data and market reaction may take on some extra level of importance.
Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.