Iran conflict latest: Trump pauses Iran energy plant strikes by 10 days
The market girds itself for possibly the most meaningful week of the year.
With stocks at all-time highs, can the market keep the rally going? We will know soon. Not only do we have a “guaranteed” rate cut tomorrow, we also get a very important jobless number on Thursday, and have a massive $4.9 trillion in options expiring on Friday. All will have a meaningful influence on the overall market.
The bruised bears are sure that the Fed cut, with inflation still far from their 2% target, will be a “sell the news” event, being a sign of a slowdown concern by the Fed over weaker employment. The employment data has been a concern, but it certainly has not translated to weaker earnings so far. The huge option settlement could easily cause big short-term moves that have little to do with long-term fundamentals.
The major indexes are sagging a bit this morning, and the VIX has climbed to a 2-week high of 16.1. Interest rates are flat, with the short end inching down slightly. The bet on a 50bps cut tomorrow has faded to 2%, while the bets on sequential quarter point cuts at the next 3 Fed meetings (Sep/Oct/Dec) are firm at 70%. Prospects for a positive yield curve anchored well above deposit rates have driven the major commercial bank stocks to highs. The lower rates on the way have driven the US dollar index to a 4-year low of 96.3
On the commodity front, gold and silver continue to march to new long-term highs. Copper remains well off its pre-tariff high. Crude oil has risen above $64/bbl on the back of Ukrainian drone attacks on Russian ports and refineries, raising energy stocks 1%. Natural gas is flat at $3/mcf. Crypto is flat with Bitcoin at $115.2K where it’s been for a week, rallying with stocks from $108K at the end of August.
With stocks already at levels forecast earlier in the year for year-end, the Fed’s comments on tomorrow’s rate cut will be key to near-term movements. If Powell characterizes a series of cuts coming due to serious concerns about employment trends, there will likely be some downside volatility. If he speaks in terms of getting closer to a neutral rate, we may see new highs.
Away from the Fed, we are seeing record share buybacks, IPOs up 50% for the year, and no wavering in the AI narrative. The trend remains positive, and even if the cut tomorrow turns into a sell-the-news event, the buy-the-dip trend will limit the damage and be boosted by flows out of money market funds looking for better yields for the bal
