The market is on pins and needles as Jay Powell & Co embark on a massive reversal of policy amid an atmosphere of doubt.

There are credibility issues.

There are timing issues.

There are other issues, including parts of the inflation crisis for which the Fed has no tools.  The rate hiking cycle will be the most aggressive since Paul Volcker, but it still may not go far enough.  There is no political cover in this world of cancel culture and a reactionary White House that faces near term political peril. 

Moreover, the Fed is hiking rates as cracks in the economy are becoming more pronounced. 

ISM Services

The ISM Services PMI tumbled to 57.1 in April from 58.3 in March.  Wall Street consensus was 58.5.

The 17 services industries reporting growth in April — listed in order — are: Construction; Utilities; Management of Companies & Support Services; Real Estate, Rental & Leasing; Accommodation & Food Services; Public Administration; Professional, Scientific & Technical Services; Educational Services; Mining; Transportation & Warehousing; Wholesale Trade; Finance & Insurance; Other Services; Health Care & Social Assistance; Retail Trade; Arts, Entertainment & Recreation; and Agriculture, Forestry, Fishing & Hunting. The only industry reporting a decrease in April is Information.

There were the same complaints from the War on Ukraine, supply chain, inflation, and labor shortage.

 “Business remains strong, only dampened by shortages in labor”

“Talent shortages continue to make it difficult to get work done across many industry sectors”

“Inflation, supply chain issues and access to qualified workers continue to be issues.”

ISM Services

While in expansion, it’s clear the manufacturing and service sector key metrics are moving in the wrong direction, as prices remains near all-time highs.

You just need two charts on your desk: NASDAQ 100 (NDX) and the Ten Year Bond Yield.

The NDX is hoovering off key support and the Ten Year is below key resistance – something has to give.

I still think there will be a relief rally in the next 36 hours.