In yesterday’s note I casually offered up 5 reasons for bulls to be, well, bullish on equities right here, I then proceeded to turn each on its head to justify a bearish stance… With regard to the bull’s narrative, clearly, the presently most telling aspect is the somewhat softer tone emerging from Fedheads of late.

Question then being, are traders prudent in bidding up stocks based on, for example, the Fed walking back its earlier threats to hike by .75% come December 14th?

Well, perhaps, but, thing is, while indeed Fed members are hinting that they’ll go lighter on a meeting-by-meeting basis, they’re at the same time suggesting that it’ll be a longer (albeit slower) path to their ultimate rate destination. 

Bespoke Investment Group, in their note this morning, suggested that the market is proceeding in line with current Fed guidance:

“Throughout all of August, September, and the first half of October, the market was steadily raising its forecasts for policy rates, and not surprisingly, stocks were under pressure. In mid-October, though, the odds of a 75 bps hike at the December meeting peaked at 77% and have been steadily declining to less than 20% today. It’s no coincidence that during that same stretch, equities have rallied. It sounds pretty obvious, but as long as the market remains on the same page as the Fed or finds itself playing catch up to a less aggressively hawkish policy path, equities should benefit from a tailwind.”

Well, I don’t know that the market indeed “remains on the same page” with the Fed.

Again, the Fed, as articulated by the likes of governor Mester, suggests that there’ll be no end in near-term site to rate hikes:

“I don’t think we’re anywhere near stopping,”

I mean, if “the market” includes (it does) those who trade in Fed funds futures, it’s thinking the Fed is not only nearly done hiking, but that they’ll be cutting rates come mid-year 2023: