Market Journal: Set-Up is Clear

Discussion

VVIX and HY CDX are reasonably weak heading into 2pm, implying SPX is likely to pop on the FOMC statement. But defensive sectors are outperforming and 2s haven’t budged, implying the 2pm pop is highly likely to reverse, and then some on Powell’s press conference.

As is well documented, I hate to go against The Kitty. But in this case I believe he’s wrong: 99% of the pre-Powell evidence points to him striking a market-negative hawkish tone in order to rein in overly easy financial conditions that risk allowing TIPS break-evens to run away from the Fed.

Exhibits