Inside Markets — Two Sides

The Fed is widely expected to leave rates unchanged next week with markets more interested in a potential dovish change to forward guidance. Powell’s most recent comments support a patient approach, but Fed Chair Greenspan was in a similar posture in September 1998, just two weeks before cutting rates. Importantly, the OIS market is now priced for ~90bp of rate cuts this year. If realized, policy easing of that magnitude could result in investors looking across the valley to a cyclical recovery ahead with regional banks, chemicals, industrials, and small/mid cap stocks as key equity beneficiaries.

Technical resistance for the SPX is just overhead at 5650 and expect the index will have difficulty getting through that level. Since we’re so open minded, it’s important to consider the possibility of a sustained close (2 consecutive sessions) above 5650 and a simultaneous decline in implied equity volatility (VIX below 22) – which would be something to follow.