Chart of the Day: Interest Rate Markets In Their Own World
As-of yesterday, the short-term interest rate market was pricing a 59% chance of a rate cut at the FOMC’s July meeting, a 75% chance of two cuts by December, and a 53% chance of three cuts by December. As a result, interest rate contracts and short-term bonds have exploded higher in price with two year yields down over half a percent in a bit less than two months. The explicit bet is that the FOMC will be forced to cut rates in response to rising uncertainty related to trade tensions and a weakening global economy, combined with risks of outright recession. In recent commentary, FOMC members have been much less sure about the negative sides of the outlook. One member of the FOMC (St. Louis Fed President James Bullard, the most dovish member of the committee and a regional bank President who has a history of outlandish lurches in commentary) has said verbatim that a cut may be warranted, but no other FOMC member has said anything close to that. Today, Fed Chair Powell said the FOMC will “act as appropriate to sustain the expansion” and is “closely monitoring” how trade developments impact the economy; that’s a long way from getting markets ready for an imminent cut! So the market is clearly being much more aggressive than the Fed. Why?
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Chart of the Day: Beautiful Reversal From Ulta (ULTA)
This content is for members onlyChart of the Day: Proofpoint Proving Profitable
This content is for members onlyChart of the Day – Rebalancing?
If there was ever a time to “sell in May,” it was this year. Heading into today, the S&P 500 was already down over 4% on the month with three trading days left to go, and with today’s early weakness, we’re now on pace for a 5% decline for the month. Treasuries, meanwhile, have been surging. According to the BofA/Merrill Lynch index of long-term notes (10+ year maturities), US Treasuries were up over 4% MTD heading into the last three trading days of the month. While a 4% monthly decline for equities isn’t that rare (40 prior occurrences since 1990), when it’s accompanied by a rally in US Treasuries of the magnitude we have seen this month, it’s a lot less common. Since 1990, there have only been ten other months where the S&P 500 was down more than 4% heading into the final three trading days of the month while at the same time long-term US Treasuries were up over 4%.
In the table below, we have highlighted each of those ten prior periods along with how the S&P 500 has performed over the final three trading days of the month. The results are quite dramatic, suggesting we could be in store for a big move to close out the month of May.
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