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FOMC: Fear Of Missing Crash

It's that time again when the Fed must decide the fate of Disney markets...

Tuesday begins the two day FOMC confab which is widely expected to keep rates constant. However, the key will be in the Powell press conference and whether or not he mentions the fact that he was far too dovish so far in 2024. Unfortunately, Powell jumped the shark on rate cuts and now he is widely expected to reverse those expectations which is why mass confusion reigns supreme:

"Tactical positioning in Treasuries has been aggressively short over the past couple of days, with open interest building in futures as yields have stretched to fresh yearly highs, with the 2-year breaching 5% and 10-year pushing above 4.7% before paring the jumps slightly"

I don't recall any other time in recent history when both rate hikes and rate cuts were on the table at the same time. It shows that Powell is in the Volcker trap - not knowing if his rate hikes to date will slow the economy or his recent dovish pivot has loosened financial conditions to the point that his rate hikes have been nullified. Recall that at the last FOMC Powell dismissed loose financial conditions as a non-factor. One wonders if he wishes he had taken markets into consideration.

Another factor to take into consideration is the election - the Fed historically doesn't like to make rate moves near election time, which means they need to make a move sooner than later, if they make any move at all.

What we know with certainty is that markets are not the least bit concerned about what the Fed does this week. The Dow just finished a two week rally and the S&P/Nasdaq have both been rallying into this week's meeting.

Despite getting monkey hammered two weeks ago, the Nasdaq has clawed its way back to the 50 day moving average while still languishing below the 2021 high:

Momentum Tech is finishing up the right shoulder.

Semiconductor "AI" stocks are making their third lower high:

Here is where it gets interesting:

This past weekend we had the first bank failure of 2024 - albeit it was a small bank. However, it was of course highly reminscent of last year's bank run. Recall that in March 2023 Powell was forced to make a hawkish pivot because markets had been front-running the pause in Fed rate hikes.

Tuesday March 7th, 2023:

Three days later, Silicon Valley Bank exploded, that same week.

This week, it's highly likely Powell will say something similar Wednesday:

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