Yes, earnings are now in full swing with more big names coming in -- including Apple (AAPL) , Ford Motor (F) , Alphabet (GOOGL) , and Amazon (AMZN) , Qualcomm (QCOM) , and Caterpillar (CAT) . But those will all take a backstage to the Fed's interest-rate decision.
But as we await the Fed's word on Wednesday following its policy meeting, we have a mood that's been shaped by the narrative that we'll have a "soft landing" -- and stocks' response. While I still don't believe that, I have to respect it, especially as the S&P 500 broke the 200-day moving average, which a lot of investors and traders seem to be following.
Strangely, this economic storyline follows that of "transitory" inflation and those who thought high prices would be difficult to tamp down -- I did not -- and now think that we are in soft landing, which I do not.
To me, the question is "simple": Will the Fed do what the markets think the Fed should do and have priced in -- namely a quarter-point percentage hike, with maybe another quarter-point percentage hike, and a lot of data dependency?
Or, will the Fed, partly because it is haunted by the demons on predecessors who failed to stop inflation, and partly by their own demons? The vast majority of decision makers were decision makers when they acted as though the higher prices were transitory.
That is the biggest risk to markets this week. What if the Fed is so busy fighting its own history, distant and recent, that it stays too hawkish? I think it is a low risk, but a risk.
The biggest danger to markets in the coming weeks is the realization that the Fed has already gone far too far, and the economy is rolling over. Recent comments from (MSFT) and Intel (INTC) seem to support that view. Remember, Microsoft is dropping 10,000 workers and forward guidance was a disappointment. Intel, meanwhile, sees revenue missing estimates by around $3 billion.
If the Fed is going to be hawkish, they will almost certainly point to financial conditions.
The Bloomberg Financial Conditions index is the easiest it has been since the start of 2022. Not only on a relative basis, but outright "easy."
That along with jobs data continuing to be strong is why I think they Fed might disappoint Wall Street and some of last week's buyers will get cold feet ahead of the meeting.
I changed from neutral to more staunchly bearish. Not yet "all-in" bearish, but far from comfortable owning risk at these levels.
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