The good news is that stock prices are now slightly lower than they were on Wednesday morning.
But the bad news? Well, the major US indices fell yesterday, with the S&P 500 down about 3% and the Nasdaq Composite down 3.6%. The real disaster was at Alphaville favorites like Carvana, GameStop, Tesla and MicroStrategy.
The latter stocks are down 8.3% and 9.5%, respectively, sending the (absolutely ridiculous) ETFs based on them down 15% to 20%. That seems like a slim escape, given the magnitude of yesterday’s reversal and the likelihood that the ETFs will blow up and destroy their underlying stocks.
The US Federal Reserve's "tight cuts" are to blame for the chaos.
Although officials have cut rates, their median forecast for core inflation (the important thing) shows that they now expect inflation to remain above target next year. The median forecast also calls for fewer rate cuts, and Fed Chairman Jerome Powell said officials could “be more cautious as we consider further adjustments to interest rates” in the future.
So, yes, next year looks like a Fed tightening. The CME data shows that the market finds this plausible. Futures are now pricing in the federal funds rate at 4% by the end of next year; that means one or two cuts. Yesterday, the consensus seemed to be for two or more cuts.
All of this appears to have come as a surprise to investors and market watchers, including Steve Englander of Standard Chartered.
We and the market were very surprised by the hawkish tone of the FOMC’s economic outlook changes… This was clearly a risk-off event…
Fed Chair Powell’s primary explanation for the shift was the rise in core inflation readings over the past two months, though he noted that some of the forecasts included the expected impact of the Trump administration’s policies. Particularly striking was the uptick in core inflation for 2025 from 2.2% to 2.5%—only three respondents expected core inflation to be below 2.4% or lower, so no amount of rounding would be enough to bring the 2025 forecast on target.
At TS Lombard, a different Steve (Steven Blitz) takes a victory lap:
The market is in turmoil because the Fed did not do what it thought it would, but what we expected all along – cut the policy rate to 4.25% under the Taylor rule between September and the end of the year, and until there is a significant change in the economy, interest rates will stay that way. I wrote this last July, and again in September. Once inflation fell below the federal funds rate and employment began to decline, and with the understanding that inflation is the ultimate indicator, the FOMC switched to setting policy based on models. Guidance on inflation or employment is a smokescreen.
Barclays notes that the Fed chairman did not seem particularly concerned about broader economic strength at the press conference:
Powell did not focus on deteriorating economic or labor market conditions, suggesting that FOMC participants are less concerned about downside risks than they were in September.
However, stocks fell and the frothy markets took a hit after the statement, with Bitcoin down about 6 percent on the day.
#RideTheKaiaWave #MarketCorrectionBuyOrHODL #2024withBinance #MajorAirdropWatch
