***Special Fed Day Alert – Rate Hike, A Set Up As Good As It Gets For The Bulls, Buy Bonds***

Today is Fed day and one of the more anticipated ones. The stock market model is plus or minus 0.50% until 2pm and then a rally. This is based on several decades of data and not just 2026.

The stock market has not been kind on Fed days this year and certainly not to my old friend, Kevin Warsh. I believe the last five Fed days have been victories for the bears. Warsh’s two Fed day have seen late day swoons of more than 1%.

Given that the S&P 500 has closed at 5, 10, 15 and 20 day lows, this is a very high conviction Fed day for the bulls. The setup rarely gets better than this if you just play the model over time.

Below is my favorite chart when it comes to Fed meetings. It’s the 2-Year Note versus the Fed Funds Rate. It’s very clear that the market wants the Fed to hike rates over time by a full 1%. While I am super surprised by this and don’t agree, I am not arrogant enough to believe that I know better.

I do think the Fed will raise interest rates by 1/4% today and that will cause the bond market to rally, meaning lower long-term rates.I also think that Warsh will corral and cajole enough voters so it’s not a result by a small margin which the market will not like.

You can see the 10-Year Note below. Bond market sentiment is about as negative as it has ever been in my 38-year career. Last I checked, 38 years was a long time. For at least a trade, if not longer, I am a buyer of bonds. I think this spike in the 10-Year yield is the end of the move.

Finally, I disagree with the bond market for a few reasons. First, I think inflation is not concerning. 3.4% is the long-term average. I also think it cools in Q4. Second, as I have said all year, I see the economy softening in Q4 and into early 2027. If I am wrong which is always possible, it will be because the bond market isn’t worried about inflation or a hotter economy, but rather the debt and deficit. If that’s really the case, Houston, we have a problem.

On Monday we bought IYT. We sold BXHYX, IHIFX, some MQQQ and some QLD. On Tuesday we bought GDX, more IYR, more MQQQ and more QLD. We sold some PINK.