“Pivot” Talk Is Dominating the Market Moves

Stocks rallied after the Federal Reserve announced a rate hike of 75 basis points but sold off after Jerome Powell emphasized that it’s “premature” to discuss a pause in rate increases.  Dow downed over 500 points and the Nasdaq Composite off 3.4%. The market move is dominated by expectation of Fed rate hikes along with companies Q3 earnings. While Investors are curious about how much higher the Fed will raise rates in order to bring down soaring inflation. As the next Fed meeting in December, expectation that is driving the markets move won’t go away but split between some anticipating a 75-basis point rate hike and some expecting the Fed to slowdown and raise only half a percentage point.

The SPX lost 2.5% on Nov 3^rd as it crashed back below its 50MA while most its recent gains got wipe up. Moreover, the index broke down its 21MA the next day that made the price pattern even more bearish, as most investors expected that index would drop further, SPX surprisingly closed above its 21MA right below the 50MA on Friday (Nov 4^th) as the late buying came in that made the market more uncertain as the index could go either direction at current position. In other words, the rally that started from mid-Oct not completely dead as well as index stays above its previous low (3647).

Markets soared despite inflation data coming in hotter than anticipated in October.
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It’s highly possible that the SPX will fall below its October low (3491) before running higher. And it’s also possible that the Fed December meeting will turn down investors expectation which is currently driving the market moves without dovish pivot. But it won’t be surprised to see stock prices move higher even as economic conditions deteriorate. Instead, the history shows that the stock market may just be anticipating a bullish turn in the economy in the weeks and months to come.

Stock prices mostly reflect expectations for the future, and not what’s happening now or what happened in the past, in most cases, the bottom in equities will occur several months before a recession even as news on profits, GDP and payrolls continues to get worse. Sounds odd? Let’s see what will happen to this bear.