***Fed Meeting Update – Powell’s Last Stand***
Today is Jay Powell’s last FOMC meeting as chair. While I think he will also leave the Fed when Kevin Warsh is confirmed, it is possible that he remains in governorship role, if only as a foil to President Trump.
The stock market model for today is plus or minus 0.50% until 2pm and then a rally. Jay Powell has had the worst stock market track record of any Fed chair post the 2pm announcement. He has also had the best over stock market track record of any Fed chair in the modern era.
The FOMC is not going to take any action on interest rates today nor anytime soon. Below is my favorite chart to see what the Fed is doing and what the market is saying it wants. Since oil spiked from geopolitical events, the 2-Year has risen to above the Fed Funds Rate by 0.20%. In my book, that is upper end of the equilibrium range. In other words, the market does not want any action.
I do believe that the economy may weaken during the second half of the year which will in turn lower the 2-Year Note and push the Fed to cut rates one or two times before year-end.
Turning to the markets, there is certainly no concern about today’s Fed meeting conclusion. The melt up has moderated and perhaps a trading range is setting in. Both the S&P 500 and NASDAQ remain strong.
The S&P 400 and Russell 2000 don’t look bad, but they are not as strong. Clearly, a range is already in place.
I don’t think there are any actionable opportunities ahead of the 2pm announcement. We added to positions into yesterday’s weakness. Our various models remain out of sync overall with each other. We will see what the rest of the week holds.
On Monday we sold PCY, GDX, some QLD And some XLE. On Tuesday we bought RYTNX, more QLD, more QQQ and more TQQQ.
