The Fed stated the pace of hiking might slow going forward. Combined with generally cheaper markets, this underpins the Q3 rally hypothesis.
However, the removal of forward guidance will make for volatile markets in the future.
The Fed did what?
That was a masterful Fed meeting.
The Fed all but whispered “it likely will become appropriate to slow the pace of increases” and all the market heard was “yo we’re done hiking”. Cue subsequent 2% rally.
Meanwhile the Fed and the ECB also announced they are killing forward guidance, a hallowed tradition for 40 years now.
Why? Because they can’t seem to gauge the economic environment and they wish to maintain the ability to adjust. Makes sense.
However this will compound market volatility. Investors will have less guidance by which to anchor their expectations on future policy. Each meeting might bring unexpected shifts in policy. Welcome back the Fed Watchers of yore!
Chart of the week
Bitcoin supply is dropping to all-time lows, offering another element in support of the thesis that risk assets can rally in Q3.
The Puell Ratio compares today’s supply of Bitcoin to last year’s average. Low values mean there’s little Bitcoin on offer - and usually provide support for prices.
Bitcoin is not anymore decoupled from other risk assets, and a stabilization of the main cryptocurrency might help risk markets stage a rally going forward.
The TOGGLE Market Checklist
The good: Positioning is squarely negative in futures at -27%, building up support for a nice squeeze up down the line.
The bad: New Order PMIs are in negative territory yet SPX earnings are untouched. EPS contraction is now a serious risk on the horizon. Also P/E rallied to 17x and Equity Risk Premium retraced up to 3.15%% (we were hoping for it to march to 4%). And we don’t like how seasonality is heading towards a sideways/bearish phase.
Upcoming: With the Fed out of the way, we go back to basics: wait for PMIs next week.
Show me the data
Here are the links to all the data points discussed above:
Valuation indicators for UAL:NASD have been mostly positive and historically, this led to a median increase in price of 4.86% over the following 2W. TOGGLE analyzed 4 similar occasions in the past to produce the median projection and this insight received 6 out of 8 stars in our quality assessment.
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