[Chart courtesy of MarketWatch.com]

1. Moving the markets

Even though the Fed hiked rates as expected, a “morning after” hangover set in, as today’s poor retail sales confirmed current recessionary tendencies. Sales dropped -0.6% in November, which was twice the expectations of a -0.3% decline.

US Industrial Production did not help matters, because it fell 0.2% MoM (0% expected) and dropped to its weakest since September 2021, according to ZeroHedge.

Regarding the Fed’s stance on interest rates, analyst Peter Schiff summarized it best:

Now, that doesn’t mean the Fed shouldn’t be raising rates. They should be. They should have raised them a lot more than they have. The problem is they never should have cut them. That was the mistake — it was cutting rates. Raising them back up is really just an acknowledgment of that mistake. But what happens is when the Fed raises rates, it uncovers all of the problems that it created when it reduced rates. Because when it slashed interest rates to zero, it inflated a bubble economy, and it inflated it with inflation. Quantitative easing was inflation.

Then we learned that the Philadelphia Fed admitted that US Jobs were “overstated” by at least 1.1 million, a shocking story that you may want to read in detail, if this topic interests you.

As a result, the major indexes were spanked and yet again, there was no place to hide. Our Trend Tracking Indexes (TTIs) were slammed as well but remained a tad above their respective trend lines.

We’re now facing the possibility that our recent “Buy” signal may turn out to have been a head fake, but it’s too early to tell. Tomorrow’s $4 trillion options expirations session may shed more light on where the major trend is headed into the end of the year.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

Fed head Powell came out and did the expected, namely hike rates by 0.5% to maintain the efforts of crushing inflation.

However, the Fed also signaled that it will not only hike rates higher than traders had anticipated but also hold those rates higher for longer, a hawkish theme that I have pounced on for months, yet wishful thinking of an imminent pause or pivot had dominated Wall Street thinking.

While the major indexes had spent most of the morning above their respective unchanged lines, the Fed’s announcement caused a kneejerk reaction, as equities dropped sharply but then managed to claw back some of the losses.  

ZeroHedge summarized Powell’s speech like this:

POWELL: LABOR MARKET REMAINS EXTREMELY TIGHT

POWELL: A RESTRICTIVE POLICY STANCE LIKELY NEEDED FOR SOME TIME

POWELL: NEED SUBSTANTIALLY MORE EVIDENCE OF LOWER INFLATION

POWELL: FED STILL HAS SOME WAYS TO GO ON RATE HIKES

POWELL: STANCE ISN’T YET RESTRICTIVE ENOUGH EVEN W/ TODAY’S MOVE

POWELL: NO RATE CUTS UNTIL CONFIDENT INFLATION MOVING TOWARD 2%

POWELL: WILL HAVE TO HOLD RESTRICTIVE RATES FOR SUSTAINED TIME

In other words, the Fed made it very clear that it will continue its path of hiking rates, announced numerous times over the past few months, with only its magnitude changing depending on the latest data points.

Bond yields rode their own roller coaster with most yields closing lower after the initial spike. The US Dollar followed the same pattern, as did Gold, with the precious metal dropping a tad but holding on to its $1,800 level.

Given Powell’s response about the Fed’s restrictive policy restraints above, it seems to me that equities will have a tough time advancing under those conditions, and I would not be surprised to see the bears get the upper hand again.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

After the release of the highly anticipated CPI report, which came in “cooler” than expected, the major indexes stormed ahead with the Dow scoring a quick 400-point gain. The S&P 500 recouped its 200-day M/A but gave back that “victory” later in the session.

The CPI increased just +0.1% from the prior month and +7.1% YoY vs. expectations of +0.3% and +7.3% respectively. The core-CPI (without food and energy) rose +0.2% MoM and +6.1% YoY.

This are still horrific inflation numbers, but they were good enough for bullish juices to be released. However, early enthusiasm faded fast, as the major indexes dove back to their unchanged lines, and only managed to end the session with a moderate rebound but at least eking out a green close.

Helping the bullish theme were lower bond yields, the spanking of the US Dollar, and the everlasting hope that the Fed will become less restrictive, when they announce their interest rate changes tomorrow. Gold was the winner, with the precious metal gaining +1.70% and reclaiming its $1,800 level.

The odds for a 50bps hike tomorrow appears to be a given, but softer readings for next year are expected.

All eyes are now on Fed head Powell causing ZeroHedge to ponder: “Will he spoil the party?

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

While moderate bullish sentiment dominated market direction throughout the day, traders decided to shift upward momentum into overdrive during the last hour of the session, thereby pushing equities sharply higher.

The major indexes sported solid gains in the end, indicating that tomorrow’s CPI number is expected to come in lower than had been assumed. Should that be the case, we will see the bullish theme grow stronger and provide us with the much longed-for Santa Claus rally.

Bond yields jumped with the 10-year adding 12 bps to close at 3.62%. Rate trajectory expectations rose, as ZeroHedge pointed out, with the terminal rate now back up to 5%.

The US Dollar rode the rollercoaster but managed to eke out a small gain, Crude Oil rebounded after the recent drubbing, and Gold lost its $1,800 level by a small margin.   

All eyes are on tomorrow’s CPI release and Wednesday’s FOMC meeting, after which Fed head Powell will likely again elaborate his hawkish stance—higher rates for longer—which may not go over well with the Wall Street crowd, because they have almost desperately anticipated a pause or pivot in rate policy.

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