Here we are again. Another chance to find out where the Fed would like SPX to be in the coming days…and what they’re willing to sacrifice in order to make that happen.
Our targets for equities, oil and gas, and currencies remain unchanged.
continued for members…The big picture:
The Fed’s rate decision shouldn’t matter much. It’s the context around it that could move markets today. How insistent will they continue to be that there is no inflation problem – and, if there were, it would be transitory?
Wages, rent, food prices – these things rarely give up their gains. We’re stuck with them. It might be that oil and gas prices fall enough – and benefit from a changing base effect – that they offset rising prices elsewhere.
But, the Fed’s QE-driven ultra-low interest rates have created real inflation. Their official means of controlling inflation is to taper the QE (or, though it seems unlikely, raise interest rates) which would almost certainly drive stock prices lower. It remains to be seen where the floor will be. But, I continue to like the 3.618/SMA200 target at SPX 3956. It would be a 10.5% correction from Monday’s high – a target the SMA200 should reach by next Tuesday, Aug 4.
There is no shortage of important economic data due out early next week. But, my timing is driven by the charts and on when SPX’s SMA200 should reach 3956.
If lowering oil/gas prices is the tool they intend to use to temper inflation, they sure aren’t showing it yet. Prices are stable again today (so far) after a sizeable draw in WTI and RBOB.
UPDATE: 6:30 PM
Powell was quite the broken record today: “Low rates and $120 billion QE per month until substantial progress – whatever we decide it might mean down the road…transitory inflation not a problem…no goalposts necessary, we’ll know if/when the time comes…”
The obligatory VIX dump almost got SPX back to black. I see no reason to change our forecast at this point, but will reserve judgement until I can hear more talking heads opine. Right now, the mood seems to remain skeptical with a heavy dose of confusion. How could the Fed not see what everyone else sees…
A reminder, I will be out of the office tomorrow and Friday. If something really amazing happens, I’ll try to post about it. Otherwise, I’ll catch up on the weekend. All next week I’ll be on the road, posting somewhat scantily in the mornings only.
GLTA.