Disclaimer: For informational purposes only.
Please see here and here for more information about The Weight of the Evidence.
Discussion
The Week Ahead from last week (below) doesn’t need to be updated much, so I’ll keep this week’s outlook short and sweet:
Despite clearly softening labor market data, FRB Governor Waller was decidedly hawkish considering current financial market price action, leaving the door open to a 50 bps cut on September 18, but largely making the case for 25. SPY was unhappy with that.
There are 7 trading days before the September 18 FOMC. Based on SPY’s reaction to a hawkish Waller despite materially lower STIRs on the week, it is likely that SPY goes down to retest the early August $510-520 level sometime in the next 7 trading days ahead of FOMC.
Waller and Williams made it clear yesterday that 25 bps is the base case for September 18. But Nick Timiraos also made it clear 25 is not set in stone. As discussed Friday, the logical conclusion here is that the Fed wants lower equity prices to provide an excuse to cut by 50. It appears the Fed desperately wants to engineer a soft landing and knows that it needs to get to 3% neutral by next spring in order to land the plan. Lower stock prices foam the runway.
Lastly, sentiment and breadth data are about neutral, setting the stage for an excellent buying opportunity on a SPY $510-520 retest alongside oversold sentiment and breadth.
