Powell’s Cat: The Market In Superposition

By | June 25, 2019

Federal Reserve Chairpersons never reveal very much about the Board’s economic policy between formal board meetings. Chairman Powell may break that tradition when he speaks at 1:00 PM today. The markets will wait and whatever they are given in the way of new, or regurgitated information, they will attempt to use to further reiforce their either bullish or bearish thesis.

Good will be good, or good will be bad; or bad will be good or bad will be bad. Right now good and bad are in superposition, that is like in quantum physics they occupy the same space. “Powell’s cat” is alive (bullish) or dead (bearish) until 1:00 PM.

But take a look at the recent individual candles on the daily index charts. They are clearly reflecting weakness and have rolled over in the last several days. This could be expected after they have approached or made new highs, and the Fibonacci retracement levels on the S&P 500 chart are modest potential pullback levels.

What is becoming a growing concern however is the combination of the continued call for lower interest rates against a back drop of higher equity prices, low inflation numbers, and low unemployment. The market must think at least one of three things: equity prices are headed lower, or inflation is about to surge, or the employment figures are not accurate.

Employment figures would seem the least volatile over the intermediate term, and do interest rates first have to go negative before a sudden bout of inflation can be adjusted for? It looks to me like the primary concern is asset prices readjusting. But while lowering interest rates will temporarily spark equity prices higher, they will only worsen that eventual downside adjustment when it does come. Market forces should almost always be allowed to play out naturally.

Right now the market needs a 10% pullback more than it needs a 10% rally.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.