she's director of investor research at stockbrokers.com.
Hello, love to have you.
Happy to be here.
Let's break down what we need to know from the Fed meeting and the impact on yields.
Yeah, so this Fed meeting was very important because we're trying to get a baseline on Kevin Warsh and understand the picture, but what's more important than what he's saying, obviously he held, it's how the bond market reacts.
So we saw some steepening on the yield curve, which tells me that the bond market agrees with him, but more importantly, The two year yield is still very elevated.
I'm watching that level 4.2.
If we're above 4.2, that tells me short term inflation expectations are heightened.
The two year yield hasn't come down since we've had this conflict with the Strait of Hormuz being opened in being closed in the Iran conflict.
That's the level to watch.
Are interest rates, short term inflation expectations, very specifically, are they coming down with the bond market reaction?
And to me, the stock market can. go higher until that comes down, and that's geopolitical risk.
Maybe earnings can overcome that, but the way that we look at that is the two year yield.
What do you make of Kevin Warsh's comments yesterday during the Fed presser?
So they leaned very dovish to me, but I do think that he's actually buying some time because he, he stole a portion from Powell's book where Powell looks at one piece.
He will not look at one piece of data, 3 pieces of data.
Made a trend that was Powell's trend specifically.
He wants to look at more data, but he wants those task forces, but he also opened us up to looking outside of PCE, which we already knew.
But what's interesting is a lot of analysts came out.
They added more hikes on the table.
I think that's a little bit difficult because I didn't hear him say anything about the continuation of oil being anything outside of a one-time shock, which is very important to me.
And again, that points back to the activity that I see on the two-year note.
I cannot.
Stress enough how important that is.
So the next Fed meeting, right, is in September.
We've got the rest of summer left and then after Labor Day we'll have a September decision.
How does this set up the central bank to move in September?
Well, I think there's a really important level we have to look at.
So if we were to go to June 17th, the low of that day was 7402.
If we look at the markets right now, we closed at 7437.
So that tells me.
We haven't.
The market is waiting on something.
We haven't, we've had these amazing, wonderful earnings.
What Microsoft told us yesterday has reignited that AI story.
That's what's helped us rally today.
But if we look from month to month and Fed meeting to Fed meeting, we really haven't had any progress in markets, and we also haven't had any progress on that two-year note.
I'm going to bring everything back to that two-year note because it's very important, but as long as we maintain that 7402 level, I think that's extremely important.
But it tells. there is still uncertainty within the market.
I expect us to be range bound, and it's going to be choppy.
Expect increased volatility until we see that two-year note retract, or alternative alternatively, we see something with the Strait of Hormoose have some resolution, and it is a midterm year, so one would expect the administration would do something about that, but we'll see.
You're watching the S&P 500 equal weight index.
What is that telling you about the strength of this rally?
So this is very interesting.
We're seeing the S&P 500 retracts.
We're seeing the technology index retract a little bit reignited today again because of those wonderful earnings that we saw from Microsoft.
The S&P equal weight has actually continued to hit higher highs ahead of the S&P 500.
So what that tells me is it's a healthy rotation.
It's a broad market.
What we don't. to see is a mass selloff out of every single sector into a safe haven like gold or even treasuries, but what we see is more of a rotation into other sectors, and that's actually a positive sign and a healthy sign within the market.
So that's what gives me the reasoning that we are going to be in a trading range is because there is the underlying other sectors that are propping the market.
It up.
We see earnings now and getting reprieved from AI with the positive earnings.
We are feeling better about capE spend, seeing some ROI that helps us get beyond that.
So we're going to be like a trading range from floor to ceiling, if you will.
All right, floor to ceiling.
Jess Inskip breaking it down for us here on Taking Stock.
Jess, thank you so much.
My pleasure.
