The market came alive after more signs the economy is becoming less alive, but it might have been a slip of the tongue or misread by markets to comments from Lael Brainard, Vice Chair of the Federal Reserve.

Brainard laid it on thick like all the troops on how determined Powell & Co are to arrest inflation regardless of potentially harsh consequences.

Then she mentioned that at some point, the central bank would need to consider the risk of overshooting with monetary policy that was too tight. Yep, she acknowledged the risks on both sides, and the market took off like a rocket. For one day, the stock market was alive!

• S&P 500 (SPX) +1.83%
• Nasdaq Composite (COMP) +2.14%
• Russell 2000 (RUT) +2.21%
• CBOE Ten Year Treasury Yield (TNX) -2.25%
• Bitcoin (BTC) +3.2%
• Ethereum (ETH) +5.97%
• Gold (GOLD) +1.0%
• West Texas Intermediate (WTI) -5.79%

The Beige Book

Summary of Commentary on Current Economic Conditions

By Federal Reserve District

Households are trading down, housing is down in all twelve regions, with further softening demand over the next six to twelve months.

Heat Map

It was  an odd session because Utilities (XLU) led the way, underscoring the strong undercurrent of anxiety, even when the market pops. This is very uncommon and a signal to tread lightly.

I have no answers for the swoon in crude oil. However, everything seems positioned for a massive rebound.

Fibonacci Retracement?

I’ve always been intrigued with Fibonacci numbers and the recurring role in nature and technical analysis. For example, in the stock market, Fibonacci retracements (pullback from the high point of the most recent rally) levels often signal a reversal; 61.8 is a key Fibonacci number achieved by the S&P 500 (SPX), Invesco Trust Series (QQQ) and the Russell 2000 (RUT) yesterday.

Portfolio Approach

There are no sector weightings in our Hotline Model Portfolio this morning.

Today’s Session

The market is keying off the rate hike by the ECB, which also updated their economic forecast.  Interestingly, they do not see recession.

ECB Forecast	Inflation		GDP
	Current	Prior	Current	Prior
2022	8.1%	6.8%	3.1%	2.8%
2023	5.5%	3.5%	0.9%	2.1%
2024	2.3%	2.1%	1.9%	2.1%

Jay Powell speaking ahead of the open is also adding angst this morning; although, the street is still modeling for:

• 75bps in September
• 50bps in November
• 25bps in December

But, still no hikes in first half 2023.

Comments

I think Powell and Co. need to say that they will have to continue raising rates to try and counter the inflationary pressures caused by the the profligate spending of the Congress and the White House. David on 9/8/2022 10:01:11 AM

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