Navigating Volatility: What You Need to Know Before the Opening Bell

Introduction: Now that we find ourselves in a post-June Fed meeting world, today’s price action will reveal significant insights into the market’s response to recent developments. During yesterday’s “hawkish pause,” the market was taken aback when the Fed revealed plans for two more rate hikes. The 2/10 inversion reached a recent low of 0.90 bps as two-year yields surged. However, as Powell addressed the press conference, the market rebounded, closing near pre-meeting levels. Are investors calling the Fed’s bluff? Let’s delve deeper into the data and factors at play.

Fed’s Plans and Market Reaction:

The Fed’s announcement of potential rate hikes caught the market off guard. Yesterday’s initial shock followed by a recovery suggests that investors may be skeptical of the Fed’s projections. Today’s price action will provide further insights into the market’s sentiment and whether it sees the Fed’s plans as credible.

Data Dependency and Inflation:

The Fed has emphasized that rate hikes are data-dependent. While recent inflation data has shown positive signs, certain components, such as food and housing, have not accelerated as quickly as desired. This highlights the significance of closely monitoring Core PCE (Personal Consumption Expenditures), a key inflation indicator that excludes volatile food and energy prices.

Historical Patterns and the 2/10 Inversion:

In previous Fed cycles, the 2/10 yield curve has inverted as the Fed raised rates, but it then reverted to its regular upward slope before the market experienced a sell-off. This pattern aligns with historical trends where the market tends to perform well during periods of Fed tightening and experiences declines during rate-cutting phases. Recognizing these patterns can provide valuable insights for investors.

Market Outlook and Fed Actions:

Throughout the year, it has been highlighted that the market historically performs well during Fed hiking cycles. This aligns with the current scenario of potential rate hikes. Understanding the relationship between Fed actions and market performance is crucial in formulating investment strategies.

Conclusion: As we navigate market volatility, the aftermath of the June Fed meeting provides a wealth of information to analyze. Assessing the credibility of the Fed’s projected rate hikes, monitoring inflation data, and understanding historical patterns can aid in making informed investment decisions. Remember to stay updated, evaluate key indicators, and adapt strategies accordingly in order to effectively navigate market volatility.