We can expect one rate hike at the very least, as well as the very most. This would be the third hike since December 2015, and arguably the one to tip the precarious balance in the equity markets. Let's suppose the Fed members take a pass at the next meeting, in a few weeks, agreeing to wait to see what policy initiatives Trump and the GOP Congress can muster.
Let's suppose we see our next hike at the larger FOMC meeting in March. There's your spark. Never mind what was said in December -- that's it, we're one and done for 2017.
We're off to the races. Solid support is at 1620 on the S&P by about mid-June.
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| SPX 2Y |
Equity bears that are still among the living today should be asking when the Fed will next cut rates, i.e. when the members will see the face of raging deflation, the oncoming recession, panic, and reverse course. I propose that we see this as soon as the June FOMC meeting, a desperate effort to restore confidence, animal spirits, inflationary expectations, credit expansion, earnings multiples, home equity loans, social media start-ups, 10-year auto loans, good vibrations, the works.
We'll get one hell of a surprise, and an epic bounce in equities, that's for sure. Almost to a .618 retrace.
After that, we can look forward to the 10Y Treasury yield making its final lows at 1% or even below. Rates have not broken out of the Volcker bond-bull channel just yet.
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| 10Y Treasury since Nixon |
Short-term, we're looking to tag the 2300 level next week, before a pull-back into mid-February.
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| SPX 20D |
But it will be the rate cut, not the rate hike, that marks the end of the epic reflation rally and a prelude to a fall market crash that will humble 2008. That's when the Fed shows how desperate and powerless it is at the end of the long-credit cycle.
