The DC Today - Wednesday, January 31, 2024
The Dividend Cafe
The Dividend Cafe - The Bahnsen Group
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🗓️ 31 January 2024
⏱️ 8 minutes
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Summary
Today's Post - https://bahnsen.co/4bhe01g
The Fed today did as expected, which was nothing, leaving rates in tact for what has now become a six-month pause. Chairman Powell reiterated the unlikelihood of a rate cut in March (more on that in a moment). Markets sold off with the Nasdaq especially getting pummeled (but it was already down over -1% on the day before the announcement. BUT, bond yields COLLAPSED, with yields dropping significantly making it a rare day (in the last year or so) where bonds rallied huge and stocks sold off quite a bit.
The Fed futures moved down to 35% for a rate cut in March but I have to say that is shocking. I would have thought they would go to 0% (okay, more like 10%) with the Fed Chair kind of saying they are not cutting yet. My best guess is enough actors in the market just believe the inflation data will come in so improved and economic data will come in so questionable between now and March 20 that the Fed will change their minds.
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 |
| 0:06.8 | through Thursday to bring you up-to-date information and perspective on financial markets. |
| 0:13.8 | Well, hello and welcome to Fed Day. Fed Day is the best day, always. Here in the D.C. today. When I say it's the best day, it doesn't |
| 0:22.4 | mean it's because markets always go up. In fact, far off and far more often than not in the last |
| 0:28.5 | couple of years, Fed day is push markets lower, but that stuff doesn't bother me much for |
| 0:34.0 | rather obvious reasons. Today, markets did come down, and I want to explain some |
| 0:38.3 | stuff because the bond market rallied huge, and the stock market got hit, and there's some |
| 0:44.2 | nuances that are, I just don't want you understanding it from the press. That's, by the way, |
| 0:50.6 | a universal statement of fact. I don't want you to understand stuff from the press. |
| 0:59.1 | Okay, so Chiron Pau did basically say, look, we don't think we're cutting in March. |
| 1:06.4 | And he obviously used the normal Fed-Speak language he would need to use to say that, which included the openness of something potentially changing. But he did a very good job, I think, telegraphing |
| 1:13.5 | to markets. We don't think we're going to be in position to be cutting at March. And yet, |
| 1:17.4 | we see this path of easier policy. They took out a lot of the restrictive language, even from |
| 1:22.4 | the December release. And it's all in the trajectory that we've certainly expected it would be. |
| 1:29.1 | Futures had already come from 80% probability of a cut in March down to about 50. |
| 1:33.9 | But here's the thing that's fascinating. |
| 1:36.4 | They only closed today at a 35% probability. |
| 1:40.4 | I would have thought I'd go to zero or really not zero because, you know, it's tough to get there in this environment when there's certain situations that could very well see them cutting. |
| 1:52.2 | But I would have guessed it would have collapsed down to 10 percent implied probability of a rate cut in March. |
| 1:58.7 | Now it's at a 65 percent probability of staying still at the March 20th |
| 2:03.6 | Fed meeting, which keep in mind, it's seven weeks away, versus 35% saying that there will be a cut in March, |
| 2:10.4 | and we're still at virtual certainty of cuts in May. Why is the futures market not responding more certainly? And I think the best answer is that |
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