The DC Today - Wednesday, December 13, 2023
The Dividend Cafe
The Dividend Cafe - The Bahnsen Group
4.9 • 572 Ratings
🗓️ 13 December 2023
⏱️ 9 minutes
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Summary
Today's Post -https://bahnsen.co/46RNNmw
This may have been the least anticipated Fed Day in nearly two years, with the futures market serving up a 100% chance of no rate change ever since the last Fed meeting. That said, the Fed chair talking after a rate announcement always has the possibility of moving markets. Today, he moved markets. That he didn’t even remotely push back against market expectations for rate cuts next year was a surprise, but the dot plot actually showing three rate cuts in 2024 was a huge surprise. Now, I have been saying it for months, and fed futures have been forecasting it, so maybe this market response seems overdone – but for Jay Powell to just say it? Today was like reading a future history book.
I think it is important to note that the Fed Funds Futures are currently pricing in a 100% chance of a 100 basis point reduction (1%) in the Fed Funds Rate by this time next year. There is a 24% chance of it being down 1.25%, a 37% chance of it being down 1.50%, and a 26% chance of it being down 1.75% – all by next year. The most “hawkish” expectation is a 100 basis point cut.
All stock market indexes were up the SAME. And I am pretty much sure this was the biggest bond rally of my career in a single day, as the 2-year yield dropped THIRTY BASIS POINTS and the 10-year dropped EIGHTEEN BASIS POINTS. Ay yi yi.
Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com
Transcript
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| 0:00.0 | Welcome to the DC Today, your daily market synopsis of the Dividing Cafe, brought to you every Monday through Thursday to bring you up-to-date information and perspective on financial markets. |
| 0:13.1 | Hello and welcome to the Wednesday edition of DC Today, Fed Day, back in the New York studio office, just got back a couple hours ago, |
| 0:23.0 | flying back from Michigan, and flew back in time for the Fed press conference. |
| 0:29.0 | And I am telling you, today will be in the history books. |
| 0:32.5 | The history books I refer to are not necessarily the ones your kids and grandkids will read in fourth grade |
| 0:38.3 | where they talk about Christopher Columbus discovering America, but they will be in the financial |
| 0:44.1 | history books because I have never seen a press conference like this from the Fed. |
| 0:49.8 | And I am still, as I'm recording, as I was typing the DC today, just moments ago, in a complete state of shock about what I have seen. |
| 0:59.6 | The Fed, more or less today, told you, yeah, the futures are right. |
| 1:05.5 | We're going to be cutting. |
| 1:07.1 | Now, you can say, David, this isn't news. |
| 1:08.8 | You've been telling us for weeks that you think they're going to cut in 24, that you don't think they're going to be tightening or hawkish in an election year, and that the futures market has already been predicting it. And that's all true. But I have, in between meetings and speeches in Michigan, was sitting in my hotel room listening to Bloomberg, I think starting at like three something in the morning. |
| 1:33.6 | And then for hours upon hours, it felt like two days of guest after guests saying the one thing we know is that J-Pal will push back against the narrative that the futures market is |
| 1:47.6 | saying. It doesn't mean that the futures market's wrong. They still will probably end up cutting, |
| 1:52.5 | but he's not going to want to let that expectation be priced in. He's not going to want to lose |
| 1:59.6 | financial tightening and we think he's going to pull back on it. |
| 2:04.3 | He not only didn't pull back on it, he leaned completely into it and said the Fed's own dot plot now shows three |
| 2:13.9 | rate cuts next year. So the markets went ballistic. The Dow closed up over 500 points, |
| 2:21.4 | 512, and then get this, to give you an idea of how synchronized all of this action was, |
| 2:26.9 | maybe a little bit of short covering. I sure hope nobody was short going into this. |
| 2:35.2 | The Dow was up 1.4%, the S&P 1.37, the NASDAQ 1.38. |
| 2:42.5 | You tell me another day that those three indexes were that closely correlated virtually to the basis point in terms of performance. |
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