Everyone Seems Bullish Right Now

Rate cuts are the new expectation

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Our View

After Fed Chair Jerome Powell said that inflation is “moving in the right direction,” the bonds and notes took off to the upside.

Friday’s stock rally was fueled by falling interest rates and the idea that the Fed’s next action will be to cut rates. While Bank of America and Deutsche Bank predict interest rate cuts in 2024 I read a very stupid story that the Fed will lower six times in 2024. 

It’s important to remain focused. There is still a high possibility of a recession and the bonds were so oversold they had to pop. 

Roger Aliaga-Diaz, global head of portfolio construction at Vanguard, said the Federal Reserve will likely hesitate to cut interest rates next year for fears of a rebound in inflation. However, by keeping interest rates higher for longer, it will reduce the chances of a US economic soft landing. The world’s second-largest asset manager expects a mild US recession in 2024, which will prompt the Fed to start cutting interest rates at some point in the second half of next year. 

I think Diaz is right. If the markets remain steady and we continue to see lower inflation reports, the Fed will push harder. But right now, I do not see any rate cuts coming anytime soon. 

MiM and Daily Recap

The ES traded up to 4584.50 on Globex and opened Friday’s regular session at 4568.25. After the open, the ES dropped down to 4562.50 at 9:33 made a 4577.50 triple top, pulled back to 4570.25 at 10:01, and then shortly after, I called for a rally to 4600:

The ES rallied up to 4582.25 at 10:03 and dropped down to a new low at 4564.00 at 10:31. After the low, the ES slowly ground its way up to 4607.75 at 1:00, sold off down to the 4593.00 level, rallied up to 4602.50 and traded 4600.75 as the 3:50 cash imbalance showed $230 million to buy — slowly grew to $920 million to buy — and traded 4601.25 on the 4:00 cash close. After 4:00, the ES up-ticked and settled at 4694.00, up 27.25 points or +0.60% on the day.

In the end, everything was moving on the first trading day of December; it was a buying fest. The DJT (Dow Jones Transports) rose an astonishing 445.25 points or +2.96%, the  RTYZ23 (Russell 2000) closed up 3.07%, the YMZ23 (Dow Jones) closed up +0.88%, the ES closed up +0.60% and the NQZ232 closed up +0.28%. The Dax (German futures) closed up 1.55 points or up +0.95% and is just less than 2% away from it’s all-time high, the ZBZ23 (Dec bonds) settled on a new high at 118.47, up 1.74% and the TNZ23 (10 Yr Note) closed up +1.09% or 1.23 points. 

Gold made a new high, the front month futures on the precious metal rose 1.6% Friday and settled at $2,091.70 an ounce, its highest settlement since August 6, 2020, when they closed at $2,051.50 and has gained 13.8% this year, and bullish speculators’ positions are only in the middle of their historical range, according to J.P. Morgan, suggesting further potential buying appetite. 

Buying has been robust in recent days, which may reflect traders’ thinking that bond yields have reached unsustainably low levels and will rebound, which would dent stock and bond prices. In terms of the ES’s overall tone, it was firm. In terms of the ES’s overall trade, volume was on the high side: 243k traded on Globex and 1.556 million traded on the day session for a total of 1.7995 million contracts traded. 

Technical Edge

Economic Calendar

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!