Is the Fed going soft on further hikes
Abraham George Macro Musings
In my previous report, my focus was at the 4050 level on S&P 500. We expected a weekly closing above that last week but it didn’t happen. Nonetheless, the market closed decisively above that yesterday and that’s a perfect sign for further gains.
What’s so important about this level? It is the 200-day moving average and the 200-day moving average is more like a dynamic trendline. If you think real money managers like Warren Buffett or Stanley Druckenmiller looked at anything technical they pay more attention to the 200-day moving average than anything else.
Ever since the Fed got on to this hiking cycle the markets almost touched the 200-day moving average a couple of times but this is the first time it is closing above it. There is still an additional technical indicator that if it can cross that will be good for the uptrend. If we draw a descending trend line from the top of the market whenever that happened last year we can see at least four touches to that line. I think there is a good chance the market will close above that possibly tomorrow if we get a weaker jobs report. The funny thing is bad news is good news for us now as we look for a weak report that will be less inflationary for the markets to go up.
There is also other information too which should make us feel inflation is abating. The price of crude oil was down 9% in November. Our next major inflation report comes out on 13th December. Conveniently the next decision on interest rates by the Fed is on 14th December. The Fed surely should take note of the CPI figures the day before in making the decision on 14th Dec.
With so many layoffs with tech companies in November which was more than all the previous four months put together, Powell knows clearly that the trend is turning as he wanted. With that in mind Powell’s speech at the Brookings Institution, yesterday and the question & answer session that followed was exactly what the markets wanted to hear.
As I highlighted before the 70-year history of the midterm elections has been positive for the markets for the following year. But in the present situation, the biggest elephant in the room has been inflation. Recently car prices, housing prices, and rents have all been coming down. So we should expect negative monthly price changes coming down the pike. Therefore it is not the actual changes that matter but the relative changes.
So there is a confluence of positive factors: midterm elections, inflation topping out, and positive technical factors. The Fed surely will hike but I don’t want to speculate on how much. It doesn’t look like it will be 75 basis points again.
Happy days are here again!
If you received value from this post, and you’d like to send some back, or if you’d like to signal to me to continue spending time on these types of explorations, feel free to buy me coffees (thank you!):
So, there we go. Thanks for reading Breezy Briefings. If you enjoyed this, I'd really appreciate it if you could take a second and tell a friend. Honestly. It makes such a big difference.
Forward this email. Recommend the newsletter. Share on Twitter, WhatsApp, Telegram, LinkedIn, Slack, wherever!
Join Breezy Briefings’ Official Telegram Channel: https://t.me/BreezyBriefings
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office, and a hedge fund.