To The Moon

What Happened last night?

• S&P 500 and Nasdaq-100 plunged 1.6% and 1.9%, respectively, last night following a surprisingly hawkish FOMC statement.

• The most hawkish remark by Powell is, 'I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify that March is the time to do that.'

• Fed funds futures are now indicating a 38% chance of a cut in March, down from odds of 62%.

Source: Bloomberg, 31 Jan 2024

Why I Think a March Rate Cut Is Still on the Table?

• The U.S. economy is slowing, which could lead to a decrease in inflation. The U.S. Conference Board predicts a +1.2% GDP growth in 2024, down from an estimate of 2.5% in 2023.

• The Fed may only provide a clearer statement about a March rate cut when Chairman Jerome Powell delivers his Humphrey-Hawkins testimony in late February or early March. Payroll reports and inflation data released before March may suggest to the Fed that inflation is indeed less worrying than initially thought.

Conclusion:

• S&P 500 typically experiences a challenging month in February during election years. Given the combination of seasonality and the hawkish FOMC statement, investors might be inclined to push the S&P 500 lower in February.

• As of now, the S&P 500( $SPDR S&P 500 ETF Trust(SPY)$ ) is still up 17.69% from its October 2023 low. It wouldn't be surprising if bears use the potential delayed rate cut as a reason to push the stock market lower.

• However, I believe any correction could present a favorable opportunity for long-term investors to accumulate positions. The next immediate support for the S&P 500( $Vanguard S&P 500 ETF(VOO)$ ) is at 4727, based on Fibonacci Extension levels. We would prefer to reassess the S&P 500( $Vanguard S&P 500 ETF(VOO)$ ) if it reaches this price level.

• In the case of further price corrections, we still favor the Magnificent Seven stocks.

• For investors concerned about delayed rate cuts risk, considering buying protective put options or inverse ETFs like $Nasdaq100 Bear 3X ETF(SQQQ)$ or $ProShares Short QQQ(PSQ)$ could be a prudent move.