Many market players, including me, were anticipating a quiet session Tuesday as we awaited the Fed interest rate decision coming on Wednesday afternoon. It turned out that the fireworks began early, as European Central Bank President, Mario Draghi, made some very dovish comments in a speech, and then President Donald Trump created some optimism about progress on a China trade deal, as he plans to meet with Chinese leader, Xi Jinping, at the G-20 gathering in Japan.
This duel blast of positives is causing some consternation among some pundits as a big part of the justification for central banks is the cost of the trade war with China. If the trade war does see a positive resolution, do we still need aggressive rate cuts?
We are unlikely to see an answer to that question soon, but it makes the Fed interest rate decision tomorrow even more important. The chances of a rate cut tomorrow are diminished, but will the Fed back off from some of its intensified dovishness?
The market is starting to cool off now and is contemplating that question. There has been some major reversals, with Beyond Meat (BYND) at the top of the list. Breadth is still extremely strong with over 5600 gainers to 1600 decliners and over 475 new 12-month highs.
The move this morning caught many folks by surprise and there was a surge in fear of missing out, but now there is some concern that maybe the Fed won't be as wildly dovish tomorrow as some of the bulls would like.
The bears are already scoffing at the idea of any major progress on trade even if Trump and Xi do meet, and the market has been riding this dovish sentiment for a while now. We are used to celebrating a dovish Fed, but will hints of future cuts be enough to keep this market running in the short term?
I've made a few sales today and have tightened up some stops, but I'm sticking with the trend for now.