Futures are off slightly on the eve of another important CPI print.

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SPX reached our 6009 target (from August) two days ahead of schedule, leaving ES 6064 as the last remaining upside target in the vicinity.  With ES reaching 6053 overnight, this rally is either due a pullback or a breakout. In short, it’s another moment of truth for equities.

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It was a typical Fed press conference, with Powell ducking and dancing around any substantive revelations, when someone asked whether the election would affect the Fed’s policy decisions.  It was no surprise that Powell fell back on the usual 200-word “data dependence” answer that we’ve all heard before.

Then someone asked the question that was really on everyone’s mind: Would Powell step down if Trump requested it?  Powell responded with a one-word answer: “No.” Ladies and gentlemen, 2025 just got a lot more interesting.

I was dead wrong when suggesting that Powell couldn’t resign fast enough. I assumed that Powell would rather crawl through broken glass than spend another 4 years under Trump’s withering criticism. Apparently Jay is made of sterner stuff.

And, why not? Trump’s constant and very public pressure was at least partly responsible for the Fed keeping interest rates as low as they did even after inflation increased. Somewhere on the road from 2% to 9.1% CPI, Powell must have been wishing for a rematch. Now he’ll have one.

ES has topped its IH&S target and is eyeing a backtest, with a potential tag of the 1.618 at 6064.50.

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The macro outlook has certainly changed over the past two days. Will the FOMC ignore it or take it into account when issuing their interest rate decision later today?

ES is within 11 points of our IH&S target at 5984.

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Following the shocking election results in the US, futures actually tagged our downside support at the 50-day moving average and, in a 2% surge, our next upside target.

The spike has all the hallmarks of a pop and drop, however, as the 10Y has broken out.
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Since markets are essentially frozen as we enter the most consequential week of the year, we thought this would be an opportune time to review the big picture.

As always, we began the year [see: A Look Ahead at 2024] with specific targets.

SPX:  “The most important chart pattern for SPX is the large Inverted H&S Pattern which completed on Dec 11 [and] points to 5727.” Though we identified a path to completion by June 2024, we noted that “there is definitely a possibility that October works just as well as June.”

SPX came close to our 5727 target in June, but was rebuffed by the Fibonacci 1.618 extension and reached it instead on Sep 24.

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Nonfarm payrolls were undeniably affected by the hurricane and strikes in October. Nevertheless, the plunge from 223K to 12K – well below estimates of 125K – is likely to provide the FOMC with all the cover they need to cut rates again when they meet next week.

Futures have rebounded, retaking the 50-day moving average. But, the rising wedge has clearly broken down.

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Strong economic data continues to worry investors, many of whom had pinned their hopes on Fed rate cuts.  Initial claims came in at 216K versus 232K expected. Personal income rose 0.3%, in line and an increase from 0.2% last month. Personal spending rose 0.5%, also in line and an increase from the prior 0.3%.

Last, headline PCE rose 0.2% MoM, as forecast, while core rose 0.3% versus 0.2% expected. The annual prints were 2.1% for PCE and 2.7% for core PCE – a data point which has the algos a little bit more nervous than they already were. It didn’t help that the employment cost index rose 0.8%.

Futures were off sharply overnight, testing the Oct 23 lows before bouncing only a bit on the economic news.

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GDP is on track with estimates at 2.8%, but ADP payroll data was 2X estimates at 233K versus 115K. Given the Fed’s recent emphasis on employment, this morning’s data adds to the argument for at least a pause in rate cuts.

The more important data, however, is tomorrow’s PCE print.

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Futures are off modestly, though SPX’s rising wedge remains intact one week ahead of the US election. Don’t look now, but the 10Y has risen to our upside target.continued for members… (more…)