Good morning,
Yesterday’s +50 bps rate hike by the Fed and its slightly higher terminal rate expectation (5.0% to 5.1%) for next year was not a real surprise to anyone. The S&P 500 was off -.60% on the day, likely reflecting some disappointment that the Fed was not a little nicer (less hawkish) when talking about the end of the current tightening cycle. Even the VIX blew a sigh of relief, dropping back to 21 from an elevated 25 two days ago.
I suspect that yesterday’s fully digested rate hike and Fed commentary will lift recession probabilities across most of Wall Street’s 2023 Annual forecasts coming out in the days ahead. Futures are off -1% this morning for several possible reasons – Fed commentary hangover, a miserable slate of data released from China overnight, and both BOE (Bank of England) and ECB (European Central Bank) policy announcements later today.
So, here we are at year-end. Our rally has remained intact although struggling with the 200 dma (day moving average) – see the Bloomberg S&P Chart below. The makings of a Santa Rally are all there; a vacuum of macroeconomic data as the government shuts down for the holidays, tax loss selling that is mostly over, hope runs eternal at this time of year, and short-term rally technicals remain favorable.
Let’s finish out the week with a triple-option expiration day tomorrow and wait until next week to start looking at the probabilities for market moves in the new year. See you Monday.
Be well,
Mike