Will Fed want to tank the market when Trump election coming up?
I think Powell has just dug a very deep hole for the Fed. He is trying to placate all stakeholders but leaving none satisfied with his actions.
On the one hand, Trump and the Market is demanding for rate cuts and a rather aggressive easing path. He fell short of this. On the other hand, there has been increasing clamor from economists and top officials including 2 Fed voters that the rate cut is not necessary and by delivering one cut and dropping hints that it may be a one off, he has not amply placated this group.
I guess Powell must have been in a difficult situation but I think he should just have stuck on to a no rate cut path and not u turn from this position that was communicated to the markets just some 3 months ago. That way, the Fed's credibility and independence would have remained intact.
I suspect that the Markets, both bonds and equities would be sending more signals to tell Powell that his decision may not be the right one and Trump would add on to the political pressure. So the Fed may well be fighting the market from here and their credibility take a further hit if they were to cave in if economic data does not back up such a case.
Last night's sell off was on the back of the heaviest volume since 13 May. Immediate support would be at 2960 in the S&P500 and was the level that it bounced off against overnight. Unless we have good news from the Trade front, the Market would be unravelling the aggressive rate cut path and we may see the downside tested again. There is potential for a heavier correction from here if the Trade talks breakdown again. However, against a backdrop of excess liquidity, there would be ready bargain hunters at major support levels and one should not get carried away with shorting the market.
For long term investors, they may well await better levels to scoop up some bargains. Traders may find the increased volatility a welcome but need to take quick profits as the bearish turn in sentiments would be met with demand from the backdrop of excess liquidity. I have traded more defensively as directionally, I have been quite conflicted into the leadup to the FOMC meeting. Stops were raised to entry point at the earliest opportunity as market traded sluggish then. Now, I would be more inclined to trade short for my intraday but it depends on the opportunities presented. Good luck!
