Technical Conditions Improve as Bigger Rate Cut Looks Possible
The odds of a half-percentage point interest-rate cut shot up to 45%.
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Following a sharp intraday reversal in the indexes on Wednesday, the market tacked on additional gains on Thursday. The strength pushed indexes over some key resistance levels and put recent highs for the S&P 500 into play.
A brief bout of volatility followed the producer price index report, but the odds of a half-point cut next week rebounded to around 45%. The market is trying to figure out if the bigger economic problem is sticky inflation or growing unemployment. It is unclear which matters most, but the Bulls are embracing a Goldilocks economic narrative, and that is what is driving the positive action.
One potential problem is that a big move into the Fed-rate decision next Wednesday will create a potential "sell the news" situation. Historically, the market has not reacted favorably to the start of an easing cycle, but there is one big difference this time —there is no significant economic weakness or credit crises of some sort.
The main catalyst for positive action is an ideal economic situation in which inflation is not too hot and economic growth is not too slow. There have been two recent market dips in the last couple of months as worries about economic slowing have flared up, but they haven’t lasted long. If there is some poor data, it can easily happen again, but there is no significant data on the horizon.
The hardest part of this market action is putting more cash to work. Entry points are challenging, and some choppy actions make it difficult. My game plan is to keep hunting for some new buys and to put some cash into my shopping list.
