Today is Fed rates decision day. Consensus looks to no move from the Fed, but expects some comments on how the committee sees the economy and some indication that on their next meeting in March, they will cut rates for the first time in almost 2 years. In the chart below, you can see how the S&P500 has moved relatively close to the odds of a ratecut in March until recently, where both lines have diverged. It would make sense, particularly now that the index is at all time highs, for both lines to reunite again. If the Fed indicates today that they will start cutting in March, the red line will catch up to the blue one. However, knowing that the Fed doesn’t like to surprise the market, and tipycally acts when odds are above 70%, if the Fed today doesn’t give today any indication that #ratecuts will start on March, the blue line may adjust towards the red one, and we may see a correction in the market.
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Chart source: Bespoke investments
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