Another low volume day for the market with anticipated 50bps rate cut from FOMC on Wednesday
Even with the expectations now of a 50 basis point rate cut on Wednesday, the trading environment today was entirely boring and uneventful. It’s the quiet period for Fed speakers right now, so you’re not going to get any headlines there, and with FOMC just two days, I don’t expect traders make any large bets in regards to market direction. With the expectation being a 50 basis point rate cut, you have to ask yourself, why are they so eager to cut rates, and in such a notable way?
Just this past Thursday, the odds of a 50 basis point rate cut stood at 24%. Over the weekend the odds of a 50 basis point rate cut skyrocketed to 62% today, most of that coming from over the weekend. So what happened? What changed? Why is it so imperative, with the stock market sitting at all time highs, does the FOMC need to cut rates by 50 basis points?
I took it easy on my trading today
This morning I continued to book some of my profits on my existing long positions, much like I did on Friday. I’m still very much concerned that Wednesday could be a strong sell the news event. If Powell doesn’t commit to an aggressive rate cut schedule going forward, it wouldn’t seem like the market would respond favorably. He’ll also have to dissuade politicians that he isn’t cutting rates for the purposes of trying to influence an election either, and as a result, I think he is going to take a much more “data dependent” tone in his comments. That could spark concerns that, even with a 50 basis point rate cut, additional rate cuts won’t be had in an aggressive manner.
Inflation will only get worse on a 50 basis point rate cut
Inflation isn’t at the target rate, CPI came in slightly hot, as did PPI, I find it hard to understand why we are cutting rates here when stock prices are at all time highs. Yes, banks could fail as a result, but if they do, that is what FDIC is there for (for the depositors), and frankly they shouldn’t be over-leveraging themselves in such a way that could expose them to gross levels of risk. And if they are, let’em burn – they deserve the consequences.
Not to mention 70% of the country can’t afford a home, and the rest of us that can, are being gutted by rising insurance costs (I know this first hand being from Florida!), rising property taxes, and freakin’ HOA fees for living at Del Boca Vista to allow for the power hungry monsters that are presiding over them to continue pocketing the money.
Okay, I’m going down a rabbit hole, but for today at least – the market was calm, the 0DTE traders came in on schedule at the lunch time hour (eastern time of course) and pushed it off the lows. I expect more of the same tomorrow, and into Wednesday. Once the FOMC Statement comes out, all bets are off.
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