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Fed Pause + No Deal = Not Much

05-19-2023

There's no point in describing the market action prior to Powell's performance today, where he and his rival for worst Fed chairman of all time, Ben Bernanke, were pontificating on something or other. In any case, Powell stated that rates might not need to rise as high given the current stress in the banking system. In addition, at roughly the same time, it was announced that the debt ceiling charade had hit a speed bump.

That caused markets to react, as the stock market flipped from modestly green to modestly red. From there the market chopped sideways before finishing with the small changes that you see in the box scores. Away from stocks, after its recent run, green paper was weaker while fixed income was flat and the metals caught a bid, with silver gaining 1.5% compared to 1% for gold, while the miners were pretty muted.

The Bulls That Caught the Bus I suspect the takeaway from Powell will be that June will see a pause, which is not unreasonable, regardless of what you believe about the economy or inflation. As for whether we will have any sort of a debt ceiling can-kick, I can't say. I just know that once we are past that, the deluge of Treasuries is going to be something that stock bulls will have to deal with and after the recent sort of drunken behavior we've seen, it could result in some real trouble.

I'm not doing anything about it yet because I'd like to see some signs that my theory is coming to pass. But at this juncture, it seems most likely that some serious stock market weakness cannot lie too far ahead.