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Stocks managed to gain back almost exactly what they lost yesterday, finishing the day up about 1.1% to close essentially unchanged at Monday’s close at 5,675. The equity market did its usual post-FOMC volatility reset, and once that reset was complete, the sellers could take over.
The VIX 1-day was acting odd to start the day, trading much lower than I would have expected around 12 PM ET. However, it saw a rapid rise, reaching 24, and then cratering once the FOMC statement hit the wires. This was followed by the usual secondary drop around 2:40 ET. But once the press conference was over, at 3:15 PM ET, the volatility reset was over, and trading appeared to resume normally.
The one thing that seemed to come from today’s meeting is that the Fed is as equally confused by what is heading the economy’s way as anyone else. That was fairly obvious, with them leaving the rate cut projections unchanged from December while downgrading their growth prospects and upgrading their inflation outlook.
The only thing that seemed clear is that USDJPY strengthened materially following the release of the FOMC statement at 2 PM ET.
That is because the spread between the US 10-year and the 10-year JGB fell by 6bps on the day. Perhaps more importantly, it fell out of the wedge pattern noted last night.
We will not know the outcome until this evening when Japan opens again, and we will see which way JGBs trade. But if yields continue to rise, the USDJPY will likely strengthen further. The movement of rates in Japan may not matter much because if the bear pennant on the US 10-year broke today, the 10-year is probably heading lower and potentially back to that 4.1% region.
A drop in the 10-year rate and a weaker dollar would probably be all that is needed to know where the market sees the US economy heading. This would be exactly the opposite of what we saw following the September FOMC meeting when the 10-year yield rose by 100 bps.
The message could very well be one of the Fed overstaying its welcome.
-Mike
Terms by CHATGPT
1. VIX 1-day – A short-term version of the Cboe Volatility Index (VIX), which measures expected market volatility over a very short time frame, typically one trading day.
2.Cratering – In financial markets, this refers to a sharp and sudden decline in the price of an asset or index.
3.Wedge pattern – A technical analysis chart pattern that signals potential trend reversals or continuations, formed when price movements converge between two trendlines.
4.JGB (Japanese Government Bond) – A debt security issued by the government of Japan, similar to US Treasury bonds.
5.USDJPY – A currency pair representing the exchange rate between the US dollar (USD) and the Japanese yen (JPY).
6.Bear pennant – A technical analysis pattern that suggests further downward movement in an asset’s price following a period of consolidation.
7.bps (basis points) – A unit of measure used in finance to describe percentage changes in interest rates or bond yields; 1 basis point (bp) equals 0.01%.
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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.
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