Things got a little hectic after the FOMC’s hawkish pause, but the equity market performed as planned.

continued…

The usual culprits were at work, of course. VIX broke down below its SMA10 and remains there this morning.

And the EURUSD’s bump up to its SMA50 is sending DXY even lower.

The combination of factors leaves the days ahead feeling fairly safe from a downturn greater than a SMA10 backtest. But, we’ll likely have to wait and see how things hold up after this weekend. The bottom line is that the FOMC’s decision to pause yesterday signals that they are as worried about breaking things (e.g. the equity market and banks) as they are about core inflation – which has barely budged and remains well above the so-called target.

The bond market was quite volatile yesterday. But, at the end of the day, the charts represented kicking the interest rate can down the road a little further.The spread between the 2Y and 10Y widened to -92 bps. Remember, the biggest risk to equities comes from the 2s10s contracting rapidly and reaching new highs, not lows.

Though new lows can produce modest downturns, too, as happened in Mar-Apr 2022.The interesting question IMO is what happens when oil and gas adjust to year ago prices again.