The Fed Threads Its Own Needle. Stocks Pay the Price

Now the question starts to linger: Do we retest the low?

The Fed delivered another 75 basis point hike. While Powell did say that the size of future rate hikes will likely decrease from here, he left a hawkish tone going forward. Specifically, he said we will need a restrictive environment for quite some time to bring inflation down. Additionally, he said rates will likely have to go higher than previously thought. 

There are a lot of complaints about the Fed and I agree with most of them. But I will say this: Powell did do some needle-threading yesterday. 

He did not thread the needle that jumpstarts a stock market rally, but that’s not what the Fed cares about. It wants to be able to slow down the rate hikes, but have investors take them seriously. That’s what yesterday’s meeting seemed to do. 

As for the S&P 500, it did not take the news too well. 

It fell 2.5% yesterday and closed at the low. It’s now down 3.6% for the week, while the ES is down 4.4% the week when accounting for this morning’s 0.75% decline.

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Technical Edge — 

• NYSE Breadth: 12% Upside Volume (!)

• Advance/Decline: 20% Advance 

• VIX: ~$26.50

Yesterday’s update called for a significant trim in the oil trade and for the dollar, said: “UUP bulls can consider a small trim at $30.25. More aggressive players can wait for $30.50.”

We didn’t have our stop hit, but with a high of $30.15, we also didn’t have a situation to trim into. With this morning’s gap-up — the DXY is up 0.70% and the UUP is trading $30.40 — I would look for another trim either in the pre-market or near the open. 

The market doesn’t need everything to go right, just something to go right. Right now it’s fighting mostly disappointing earnings, a huge slump in big tech, rising rates, high inflation and tightening from global central banks. 

Our Relative Strength list looks great but there are now questions as to how well these will hold up *if* the S&P is going for another ride lower. I want to see how the ES responds. If the names hold up, I will send out a separate email of fresh charts for them. 

S&P 500 — ES