With the much anticipated CPI number coming in hotter than expected, a new dynamic has developed in the markets that didn't exist before today:
We now have a 100 basis point hike in rates at a near 80% probability for the July Fed meeting.
This creates a brand new psychological lever between now and the July 27th Fed decision. The market will be at liberty to pull that psychological lever at will over the next nine trading days, until the Fed provides some clarity moving forward.
In the meantime, there isn't much happening on the news front. The rest of this week only has financial earnings to provide any sort of catalyst, if you want to call bank earnings that.
Next week has Netflix and a few other names reporting, with a bulk of growth names reporting the same week as the FOMC meeting.
So we have Thursday and Friday of this week, followed by the entirety of next week for the market to pull the 100 basis psychological lever and with it bring all sorts trepidation, strife and anxiety to an investor class that is already psychologically and emotionally pummeled.
At Zenolytics, we reduced long exposure today in anticipation of better buying opportunities ahead prior to the Fed meeting, as we are knee deep in the summer trading months, with low volume and volatility creating opportunities for the bears to pull a surprise raid on bidders, bringing in sudden, sharp weakness at will.
The message between now and the July 27th FOMC decision will be a mix of 100 basis points from the Fed, steep recession and earnings weakness. It's a potpourri of angst that is best left alone for the time being.
This doesn't change the outlook for the rest of the year at all. We are still going to blow the doors off the upside, once investors realize that a recession will be largely avoided this year and the Fed has done a better than expected job of stomping out inflation.
Over the next week and a half or so, we simply have the opportunity for some tactical decisions that have a high probability of enhancing performance.
Who am I to disregard such an opportunity?
Enjoy your evening.
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