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We see markets probe all the time, and right now, it seems we’re in a probing mood, searching for that “put” where a policymaker panics. As of Friday, however, it was falling on deaf ears—and Powell certainly didn’t help by sticking to the message of patience.
That was definitely not what the stock market wanted to hear. The S&P 500 was down about 2.8% heading into Powell’s Q&A session but had rallied nearly 2.5% off its morning low. Still, Powell offered the stock market nothing.
On top of that, Powell suggested that these new tariffs could create more inflation than expected—again, not what the market wanted to hear. So if Powell had intended to calm the markets, he had the chance and passed. He knew where the S&P 500 was trading heading into the event; at 10:50 AM, the index had been down more than 5%. Given the velocity of the move, one could argue that a dovish Powell promising swift and aggressive cuts could have pushed the market back to flat.
The VIX 1-day was rising sharply, hitting 55 just 10 minutes before Powell began speaking. An implied volatility crush could have easily lifted the market, but Powell didn’t come to its rescue this time. Maybe he wants to leave Trump out to dry, or maybe he really is focused squarely on inflation rather than the market. I don’t know. But there’s no Powell put.
With no Powell put, and no idea if Trump will be golfing or not, I can’t say what the market will do come Monday. I think anyone claiming to know is just guessing. I can make a case for a bounce and a case for a drop. I don’t think we’re about to see a replay of 1987—only because the market will close if the index falls 20%. That’s the good news; the downside is limited. (Smile—this market will break you if you can’t laugh sometimes.)
Knowing how the market thinks, and if Trump stays silent, which my gut says he will, the market will continue to inflict as much pain as possible until Trump breaks in the ultimate battle of egos. However, the market has been the undisputed heavyweight champ in my lifetime, breaking everyone.
The only problem, as I see it, is that right now, the stock market—by falling—is doing exactly what Trump and his team want: lowering rates. I noted weeks ago that for Team Trump to get rates down, they’d have to tighten financial conditions and push stock prices lower. So right now, as I see it, Team Trump is actually winning.
But remember—the market always holds all the cards. Policymakers don’t. Because the one thing the market controls is interest rates through the Treasury market. And when rates begin to rise in a UK-style, Truss-like moment, it’ll be game over for Trump’s tariffs.
In case you missed it, the 10-year rate finished the day down just four basis points, after rising more than 14 bps off the 3.86% intraday low at 7:30 AM. Naturally, most of that move came after 11 AM, when Powell said no cuts were coming anytime soon.
-Mike
Terms By CHATGPT:
1. Put (as in “Powell put”) – A market term referencing a perceived safety net provided by the Federal Reserve, where the Fed steps in with rate cuts or policy support when markets fall sharply. It’s likened to a “put option” in investing, which limits downside risk.
2.Q&A session – Abbreviation for “Question and Answer session,” often following a speech or presentation, where the speaker answers questions from the audience or press.
3.IV crush – Short for “Implied Volatility crush.” It refers to the rapid drop in options’ implied volatility after a significant event (like a Fed speech), which can reduce option prices sharply and impact stock movement.
4.Dovish – Describes a monetary policy stance favoring lower interest rates and looser financial conditions to support growth, even at the risk of higher inflation.
5.Financial conditions – A broad term referring to how easy or hard it is to get credit, the level of interest rates, and overall market sentiment. Tightening means conditions are getting more restrictive (e.g., higher rates, falling asset prices).
6.VIX – The CBOE Volatility Index, often called the “fear gauge,” measuring expected volatility in the S&P 500. A rising VIX suggests increasing investor fear or uncertainty.
7.10-year rate – Refers to the yield on the U.S. 10-year Treasury note, a benchmark for long-term interest rates and an indicator of economic expectations.
8.Basis point (bps) – One one-hundredth of a percentage point. So, 14 bps = 0.14%. Used to describe changes in interest rates or yields.
9.Truss-like moment – Refers to the market turmoil during former UK Prime Minister Liz Truss’s tenure, when tax cuts and spending plans without sufficient funding caused a spike in yields and investor panic.
10.Treasury market – The market for U.S. government debt, which heavily influences global interest rates and is a barometer for investor confidence in the U.S. economy.
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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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