Market Sentiment and Performance
🤷♂️NASDAQ and Equities: The NASDAQ showed strong performance towards the end of the week, recovering from its monthly lows and approaching monthly highs. The index remains in a bullish trend, refusing to turn bearish, which suggests that the market sentiment is still leaning toward a “slowdown” scenario rather than a recession.
Bonds and TLT (iShares 20+ Year Treasury Bond ETF):
🤷♂️Bonds, particularly TLT, have been on a solid upward trend since early July, consistently moving higher with minor dips.
🤷♂️The strategy is to remain long on bonds as long as they maintain their position above the Trend ($95.54)
🤷♂️The focus is on buying dips as long as the overall trend remains positive. However, if bonds fall below this level, consolidation is the expected outcome until further data suggests otherwise.
Gold:
🤷♂️Gold has continued to follow bonds and as market expectations rise to account for more fed cuts, gold will continue to perform.
🤷♂️The strategy is to remain long on gold as long it maintains its Trend ($2441.37).
🤷♂️The focus is on buying dips and consolidations as long as the overall trend remain positive.
🤷♂️If the SEP long term rate target fall and the floor floor for the Fed Funds Rate dips below current expectations both Gold and Bonds should rally.
Market Environment
Positioning for Slowdown, Not Recession:
🤷♂️The market currently anticipates a prolonged slowdown rather than a recession. This positioning suggests that both equities and bonds can rise simultaneously in such an environment.
🤷♂️Indicators like unemployment claims and Bitcoin’s range-bound behavior confirm that a slowdown, not a recession, is the base case.
Fed Policy Expectations
🤷♂️The market is pricing in a floor for the Fed Funds Rate at around 2.75% over the next three years. This suggests a gradual decline rather than an aggressive rate-cutting cycle.
🤷♂️The Fed may need to act more aggressively, potentially cutting 50 basis points this week, to prevent falling further behind the curve. A slower pace of cuts may indicate continued uncertainty about economic recovery and could affect the bond market negatively.
🤷♂️The upcoming Fed meeting’s SEP dot plot will provide critical insights into the Fed’s long-term outlook on inflation, unemployment, and economic growth, which will likely have a more substantial impact on bond markets than the rate cut itself.
🤷♂️This week’s market rally in equities may be buy the rumor sell the news event as NikiLeaks 50bps cut may indicate that the Fed is trying to slow down the onset for a potential recession or indicate that the window to have a soft landing is closing fast.
Opportunities and Risks Across Asset Classes:
🤷♂️Bonds: Continue to present upside potential as long as the Fed maintains a dovish stance and the market stays in slowdown mode.
🤷♂️Equities: May rise alongside bonds in a slowdown but could face challenges if the Fed falls further behind the curve or if inflation re-accelerates.
🤷♂️Bitcoin: Shows range-bound behavior, reflecting a risk-off environment; however, it has not yet signaled a recessionary trend.
Potential Market Catalysts:
🤷♂️This weeks FOMC meeting and SEP will play crucial roles in shaping market expectations.
🤷♂️The focus should be on the Fed’s dot plot, particularly regarding long-term rate expectations and inflation targets, as these will provide more definitive guidance on future market moves.