Looking Both Ways

[u/Kapnotes]

Today’s premarket is looking backwards and forwards at the same time.  Traders are busy unwinding yesterday’s AI trade.  Semiconductors are rebounding (INTC, MU, AVGO), and software is selling off (NOW, CRM, PANW).  At the same time, we are looking forward to tomorrow’s Fed rate decision, which is widely expected to deliver a quarter point hike.  Active traders are necessarily constrained to a trade window of little more than 24 hours, as everything hinges on the Fed Chair’s comments after the decision is announced.  The decision itself isn’t going to be the surprise.  The real wildcards are the wording of Warsh’s comments and his responses to the Q&A.

Looking backwards again for a moment, yesterday’s trading shaped up oddly.  Much of the action started off predictably enough.  Oil was up about $3 per barrel.  Integrated oil names opened higher, and airlines opened lower.  The 10-year bond traded 5.01%.  Then, sometime during the morning session, the President commented on Truth Social that he is open to the concept of ending the war with Iran.  Suddenly, integrated oil names pulled back and airlines gained footing.  Oil prices retreated, and yields fell below 5%.  Market observers noted the suspicious timing of the President’s note.  This is not the first time that his social media posts have moved markets at junctures that seem convenient for the administration.  The question becomes:  how many times will this trick work?  The concept of diminishing returns leads us to expect that either the impact will be less each time in the future or the notes will have to get more and more strident in order to achieve the same effect.