The Market: NFP + Waller Prep

Disclaimer: For informational purposes only.

Please see here and here for more information about The Weight of the Evidence.

Discussion

As detailed in The WOTE chat threads, I reduced short exposure today ahead of tomorrow’s critical NFP print and even more critical FRB Governor Waller speech at 11am EST. I’ve also updated my assessment of SPY’s likely tactical path from here from the following path outlined Sunday in The Week Ahead:

1. Pullback to the 20/50dma circa $545-550 ahead of the September 18 FOMC meeting in response to a not-weak-enough-for-a-50 September 6 NFP report

2. Rally back to $565-570 on a dovish September 18 Powell, which sets up…

3. The formal retest of SPY $510-520¹ ahead of Election Day, a decline that prompts the Fed to cut by 50 at the November FOMC

4. Once election uncertainty is relieved and the Fed cuts by 50, the stage will be set for a move up to SPX 6000 by year-end, the final rally before the move down to 4515 over the course of 2025

Updated Tactical Path

Thesis Update

With the Fed having saturated financial markets with soft landing dovishness for the past three years, the equity market is priced for perfection on what I believe is “Peak Dovishness”. As such, it’s unlikely that at current valuations and positioning SPY can handle the Fed conducting a “measured” approach to rate cuts that has them cutting 25 bps a meeting, or every other meeting, with the ever-present risk of a “pause” in cuts to assess the economic impact. This was core to the tactical thesis outlined above, and remains the case, IMO. However…