To The Moon

The Fed opened the door to a potential pause in December, as it upgraded the inflation outlook. The Fed has a window to reevaluate the data in December with the election behind, before Trump takes over on Jan. 20. TLT is likely to continue to fall as the 10Y yield approaches the 5% level, limiting the Fed's ability to normalize interest rates. Drew Angerer The ETF that tracks long-term bonds (NASDAQ:TLT) is down by almost 10% since the Fed cut in September as 10Y yields (US10Y) increased. TLT is likely to keep falling as 10Y yields increase towards the 5% level. The rising 10Y

The Israel-Iran war is likely to escalate now that the US elections are over. As a result, if Israel strikes the Iran's energy/nuclear infrastructure, the price of oil could spike and trigger a stagflationary shock, like in 1974. Thus, the S&P 500 is still facing liquidity risk due to the geopolitical escalation, even as the US election risk is eliminated. theasis/iStock via Getty Images The liquidity risk(s) The stock market was facing the liquidity risk due to two interrelated events: 1) the possibility of a contested US election, and 2) the possibility of geopolitical escalation, with Israel striking the Iran's nuclear and energy

The US-China decoupling is likely to accelerate under Donald Trump's second term. The Chinese economy is now more vulnerable than in 2017 during Trump's first term, which makes the situation more uncertain. The Chinese stock fund iShares China Large-Cap ETF is likely a value trap, and investors should stay away from it, from the long or short side. Chip Somodevilla/Getty Images News Trump's second term Former President Donald Trump is now the president-elect, and he will start serving his second term on January 20th. The Republicans have also gained control of the Senate, with a good probability of retaining

The Fed is expected to cut by 25bpt on November 7th, but the actual policy action could depend on the unfolding political and geopolitical situation. The Fed could be forced to cut more aggressively in case of the flight to safety or even consider hiking due to the geopolitically induced energy shock. The S&P 500 could be facing a deep 20% drawdown, but also a V-shaped recovery as the VIX peaks. However, if the unfolding situation causes a recession, like in 1974, the S&P 500 could be facing a 50%+ extended bear market. Drew Angerer/Getty Images News The FOMC November meeting The FOMC is set to meet on Thursday, November 7th, and the market consensus is that the Fed will cut by 25bpt, which is confirmed by the odds implied from the Federal Funds futures. There is

The S&P500 is facing the risk of a contested election, as the odds of Harris' victory increase. The resulting liquidity shock could cause a deep drawdown, but also a V-shaped recovery assuming the event does not trigger a recession. However, the likely post-election geopolitical escalation could cause a stagflationary shock like in 1974. mphillips007 Odds changed in favor of Harris victory I discussed the election 2024 playbook on October 26, but there have been some major changes, and the playbook needs to be updated and fine-tuned, with the additional focus on the post-election period. The major update is that the odds of who will become the next President have changed significantly. On October 26th, th

Summary The Fed cut the Federal Funds rate by 50 basis points, and signaled an accelerated policy easing, which is usually associated with a recession. The accelerated policy easing is inconsistent with a soft-landing and policy normalization. The S&P500 lost the major catalyst to the upside as the Fed cannot get any more dovish than it is now, which limits further PE expansion. Nathan Howard/Getty Images News Fed cuts by 50bpt. Why now? The Fed decreased the Federal Funds rate at the September meeting by 50bpt to kick off the easing cycle with "the bang". Just a week ago, it was a near certainty that the Fed would

Summary The Fed is likely to cut by 25bpt next week, and the market reaction could be negative as the market hopes for a 50bpt cut. The bond market is pricing an aggressive policy easing, generally associated with a recession, thus, the S&P500 is facing a recessionary bear market. A policy normalization with a soft landing might not be possible, as only a recession can restore price stability, given the immigration dynamics. Nathan Howard The beginning of the easing cycle The Fed is set to start a monetary policy easing cycle on Wednesday at the September FOMC meeting. The CME Federal Funds futures are indicating a 50% probability that the first cut will

Summary The S&P500's recent bounce has stalled, and the next leg lower is likely approaching. The specific trigger for the next leg lower could be the Nvidia earnings report on Aug. 28th. Ultimately, the S&P500 is facing a recessionary bear market, and the recent volatility is in the process of topping. baona/iStock via Getty Images The bounce has stalled The V-shaped bounce from the early August selloff in the S&P500 (SP500) has extended nearly to the all-time highs. However, it seems like the bounce has now stalled, and the next leg lower is likely approaching. The specific trigger for the next leg lower could be the NVIDIA Corporatio

Summary The S&P500 is a bubble, based on valuations, led by the tech mega caps, and the bubble is in the process of bursting given the fade in Gen AI hype. The market is also facing an imminent recession, based on the yield curve pattern, supported by a weakening labor market, and expected monetary policy. Thus, my baseline opinion is still very bearish, but given the bubble dynamics, the market is vulnerable to sharp rallies, which is what's currently happening. Monty Rakusen The "coming out of coma" analysis The most important thing in making investment decisions is to be able to objectively analyze the markets. However, once the position is established, it's difficult to remain objective, and the analysis of incoming data tends to be biased. For example, the bearish investors will a

Summary Fed Chair Powell might not signal an imminent monetary policy easing cycle with the first cut in September, as the market expects. The bond market is pricing an imminent recession, but the Fed still needs more (negative) data to start cutting interest rates. Ultimately, the S&P 500 is facing a recessionary bear market, which is already priced in the bond market. Nathan Howard The Jackson Hole Symposium Fed Chair Jerome Powell will speak at the Fed's Jackson Hole Economic Policy Symposium on Friday. He is widely expected to signal the beginning of the monetary policy easing cycle, with the first cut likely at the next FOMC meeting in September. The Fed's 2024 Jackson Hole Economic Policy Symposium<