Author: Philip Calrissian

As of Sept’14th 2024, US interest rates are being pinned by the Fed to 5.25-5.50%

I’m expecting three rate cuts at the remaining three FOMCs…
Sept’18th -25bps
Nov’6th -50bps
Dec’18th -50bps

The latter two are predicated on the notions the equity market will see a significant washout before the election, and the jobs data will continue to weaken.

On a grander perspective, it should be clear that rate cuts are usually around the time when equities max out, and begin a broad multi-month/year decline.

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Ten trading days is a long time in market land, with the SPX swinging from 5119 to 5661, a wave of 542pts (10.6%). The mainstream have literally swung from begging for an emergency rate cut to ‘the consumer is strong, #everythingisfine’.

You can argue the mainstream have always been twitchy, and bi-polar to some extent. Yet such collective mood swings have never been more powerful, and more rapid.

The same mainstream believe that a rate cut will help equities, the consumer, and the broader economy. The most recent three grand market declines (2019/20, 2007-9, and 2000-02) all began from around when the fed started cutting rates.

No, I’m not saying rate cuts caused the equity declines or the recession, but they sure as hell do make for the ‘ultimate equity sell signal’.

As things are, I’m expecting three rate cuts before year end.
Sept’18th -25bps
Nov’6th -50bps
Dec’18th -50bps

If I’m right, they will merit as an equity sell signal, especially for the financials, whose net interest margins will be significantly impacted. I’m actually hoping to see a few posts from people this mid September, who turn extra bullish the banks on rate cut’1. Good luck with that!

Regardless of how we trade across the next ten days into the Labor day holiday break, I’d look for price action to become increasingly problematic across September, and more so… October. There are seasonal factors of course, but the uncertainty of the election will be a prime excuse for the market to take another dive lower.
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August began on an especially bearish note, with the SPX swinging from 5566 to 5410, and settling -75pts (1.4%) to 5446.

Thursday’s candle was especially bearish engulfing, eclipsing the price action of the prior four days, and strongly bodes for lower lows.

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Increasing market drama

The past few weeks have seen volatility climb from the 11s to 19s, as we appear to have a key equity top ahead of the election.

I’d especially note VIX monthly momentum, which turned positive in July, and is set to be increasingly positive into the Fall.

Between now and early November, I have to expect at least a few of the ‘wild cards’ to play out. If correct, we’re set for some very dynamic price action.
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Regardless of how June settles, with a new hist’ high (5505 as of June 20th), its to be seen as a net bullish month. Monthly momentum is powerfully strong, as all cooling waves remain very limited.

The summer does threaten some unrest though…

-French & UK Elections.
-Trump, and related political chatter.
-Geo-political upsets via Israel/middle east, and Ukraine/Russia.

Between now and the Nov’5th election (assuming there is one), we should expect market volatility to increase from the current VIX 13s.

If you love drama, the US equity/capital market should provide it, and more so… into the fall.
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