Back in the 1960s, there was a phrase: “Selling wolf tickets” or to “Sell wolf tickets,” to express when someone was overselling themselves – either boasting or making threats knowing they could not and would not back it up. Last Thursday, Fed James Bullard laid it on thick, suggesting the Fed funds terminal rate might need to go to 7% to quell inflation right before the start of trading. The market dropped like a ton of bricks and by 10:00 am the S&P 500 was down 1.3% and seemed down for the count.
Later, it found its footing and never looked back. Investors had a general epiphany and collectively decided Bullard was selling “Wolf tickets.”
Call Bullard’s Bluff
Over the weekend, J.P. Morgan's Marko Kolanovic sharpened his pencil and lowered his Fed funds forecast to 4.75%, noting that markets priced terminal Federal Fund Rates (FFR) at 5%. But we don’t see the Fed getting there.
Jawboning Main Weapon in Toolbox
Hawkish rhetoric remains in place if financial conditions warrant. Investors must distinguish between the rhetoric and terminal rates through the long end of the curve.
Interestingly, there was still a cautious vibe to the session as Utilities (XLU), Real Estate (XLRE), and Health Care (XLV) led the way. However, even Consumer Staples (XLP) outperformed Consumer Discretionary (XLY) despite a wave of retailers blowing away the earnings consensus on Friday morning.
Lots of green in the heat map is great news, as the market needs broad upside participation to turn around this difficult year effectively.
Thanksgiving week is one of the best for the stock market, so if you are tempted to take any days off, maybe you should think twice.
The big event of the week will be the Federal Open Market Committee (FOMC) minutes on Wednesday.
We took profits of a position in Consumer Discretionary name on Friday.
Bob Iger is back as CEO of Disney (DIS) signing a two year contract. The Hollywood Report was shocked, but I’m not. The shares were crushed under Bob Chapek.
We have a position that’s deep under water, I wouldn’t chase the big gap at the open this morning bu the stock has become a whole lot more attractive and we would add at some point.
Outside of the excitement at the move in Disney (DIS), the market seems to already be thinking about all that tryptophan later in the week.
Continue to focus on the ten-year bond yield. The next leg lower should be a major spark for stocks.
|Most of you out there are too young to remember the 30 Year US bond at 13%. I don't know what the market will do in the short run. I do, however agree with Mr. Bullard that the terminal Fed Funds Rate will be at least 7% if we are to have any chance of bringing inflation back to near the 2% target. That being said, yes, that will cause a recession. The bigger risk is taking the foot off the brake and having inflation take off to the upside. If that happens, what we are experiencing now in terms of rising interest rates will look like a party!!!|
Charles A Haselberger on 11/21/2022 12:13:21 PM
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