A Hawk Rises From the CPI Ashes

The Fed, ECB and Bank of England all raise rates.

Technical Edge — 

• NYSE Breadth: 37% Upside Volume 

• Advance/Decline: 42% Advance 

• VIX: ~$21.40

As to be expected, yesterday was a bit of a wacky session. The dollar fell, rates fell, bonds rallied and the VIX tumbled 6.5%. Normally, these are good things for equities. However, buying stocks directly clashes with the old mantra of “don’t fight the Fed.” 

The Fed just raised interest rates by 50 basis points, then so did the Bank of England this morning, along with the ECB. The tightening cycle is alive and well and the Fed continues to want a restrictive environment. 

So what’s the TLDR? 

Among other things, Powell said, “I wouldn’t see us considering rate cuts until the committee is confident that inflation is moving down to 2%,” noting that he doesn’t see a rate-cut coming in 2023. The Fed also now sees a higher terminal rate too, ending 2023 at 5.1% vs. 4.6% in its previous outlook. 

On the surface, this was a very hawkish tone from Powell & Co. — even after two cooler-than-expected CPI prints — and I don’t think stock traders should overlook that. 

That said, the market — at least by yesterday’s price action — wasn’t buying what the Fed had to say. 

So how do we navigate this mess? Levels. 

S&P 500 — ES