Fed’s Big Move – Are The Markets Set to Soar?
Chart: QQQ 1-year daily
All eyes are on the Fed as a rate cut decision is about to be announced. The HCM-BuyLine® is positive, and a breakout looks like it could be on the horizon. If the QQQs can break above $485, it would be a very strong sign that we are headed for new highs on the NASDAQ, and if SPY can break out above $565, it will mean a new all-time high for the S&P 500. We expect both. We are not sure how fast it will happen, but we feel confident new highs are coming our way.
Chart: SPY 1-year daily
Following last week’s CPI report, the market had resigned itself to a 25 bp cut. But Powell has been patient, and the Fed wanted to have greater confidence that inflation would return to its 2% target.
In his Jackson Hole speech, Powell pivoted toward focusing more on the employment side of the dual mandate. His confidence had “grown that inflation is on a sustainable path back to 2%.” He proclaimed, “It seems unlikely that the labor market will be a source of elevated inflation pressures anytime soon. We do not seek or welcome further cooling in labor market conditions.”
As always, the timing and pace of rate cuts will depend on three factors. First, the incoming data must be consistent with achieving the Fed’s inflation target. However, the employment data has softened, with payrolls being revised lower and the unemployment rate coming in higher than previously expected. Second, the outlook is uncertain, especially with the elections seven weeks away. Third, the balance of risks is even more clearly tilted to the downside for employment.
