dji update: waiting for H&S to come out

Powell failed to say anything significant on Tuesday so investors are still wondering when the Fed will stop raising rates, how high the Fed is willing to raise rates and whether there will be a recession.

Essentially, it all comes down to how quickly the Fed nears the end of its rate hike campaign. Investors believe the Fed is close to the end, which is why we’re not likely to see a short-term crash. But stocks will have a hard time sustaining gains is there is uncertainty.

please see big picture

Comment:

Minneapolis Fed President Neel Kashkari pointed out that financial markets seem more confident than central bankers that US inflation will quickly fall back to the Fed’s +2% target rate. However, Kashkari warned that he and “most” of his colleagues believe the Fed’s benchmark rate will need to go above 5% and stay there “for a long time.”


That sentiment was reiterated by several other Fed officials yesterday who stressed that they are prepared for a long battle, particularly with inflation still being fanned by the tight labor market and healthy consumer spending.

Comment:

Dow crushed as a surge in consumer spending and inflation sparks concerns the Fed will stick with its hawkish rate hiking campaign for longer.
the Dow Jones Industrial Average is expected to become more data sensitive as highlighted by today’s bearish reaction to the hot spending and inflation reports.

The price action this week and month is also saying that the market is in the “sell the rally” mode, which is not likely to change until there is a clear sign of an interest rate top.

Currently, investors are pricing in three more rate hikes this year, with a peak rate seen in the range of 5.25% – 5.50% by June.