What the Market’s Betting On

So, U.S. stocks (SP500) are at all-time highs and fed funds futures are pricing in a 100% chance of a rate cut this month!

The President is touting the best economy in history, and, at the same time, is demonizing the fed for having not yet cut interest rates!

The contradiction embedded in the above sentences is utterly stark (all-time high stocks say hugely bullish things about the economy while the need to cut rates says something scary’s afoot)!

So who has it right, bullish stock market participants and the President, or bearish fixed income futures traders, the Fed itself (abruptly turned dovish at last policy meeting), and, ironically!, the President (it’s resoundingly bearish to demand a fed rate cut)?

Answer, we’re treading somewhere lower mid-range. Meaning, economic (general conditions) signals are mixed, while, on balance, trending somewhat weaker.

Clearly, stocks are holding up in anticipation that the Administration will lighten up on the protectionist push before the economy rolls over into recession, and that the Fed will keep things buoyed in the meantime.

Time will tell….

Here’s a 2-year chart of our proprietary macro index. X marks the spot where the President had the right to tout what he tweeted this morning (best economy ever). As for today, well, no.


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