Fed on hold…for now
June 16, 2024
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–Once again the near one-year SOFR calendars slipped to new lows. SFRU4/U5 down 7 on the day to -112.5 (9485/9597.5). Z4/Z5 down 4 on the day to -95 (9518/9613). Also, new low in 2/10 at -48.2 with the ten-year yield down 6 bps to 4.217%. Fed officials are in no hurry to cut rates; Kugler’s speech is a case in point. She gave comprehensive evidence to support optimism for decelerating inflation, but concluded by saying, “I believe that policy has more work to do, which is why I supported the FOMC’s decision last week to keep the federal funds rate in a range of 5-1/4 to 5-1/2 percent. We need to see more progress toward 2 percent inflation before I will have confidence that inflation is moving sustainably toward that objective.”
https://www.federalreserve.gov/newsevents/speech/kugler20240618a.htm
–In any case, near contracts are constrained by the Fed’s resolve to hold rates steady in the near term, while back contracts reflect lower future rates, projecting a slower economy and lower inflation. SFRZ’25 at 9613 to SFRZ’27 at 9645 are between 3.5% and 3.875%.
–At the end of the session, just after futures settlements, there was a buyer of 55k FFQ4 at 9469.5. Contract settled 9469; open interest was up 45k so appears to be new buyer. If the Fed were to ease in July, FFQ should settle 9492. Without an ease, a grind down toward June and July contracts at 9467 will occur.
This article by Walter Deemer was posted on x by Helene Meisler. It’s from March 3, 2000, pre-dating the Nasdaq high by only a few weeks.
https://x.com/hmeisler/status/1803070784497209522
This excerpt sums it up:
During my now 36-plus years in this business, I’ve never seen anything even remotely comparable to the current chasm in the stock market between New Economy and Old Economy stocks; the NASDAQ, which rose 85% in 1999, has risen another 16% so far this year while the Dow-Jones Industrial average (whose 30 components happen to earn more than all of the NASDAQ stocks combined do) was recently off more than 14%. But it is not the unprecedented market chasm that prompts this piece — it is the accompanying arrogance on the part of all too many New Economy (aggressive growth) managers, as demonstrated in such things as the writings of James Cramer of TheStreet.com and the utterances of a seemingly-endless parade of hedge fund managers on CNBC. These managers sneeringly inform those unfortunate souls who are not invested in the same Cisco’s and Qualcomm’s as they are (or, more likely, in the same JDS’s and Xcelera’s as they are) that “Old Economy stocks are relics of the past; if you don’t own the Cisco’s and Qualcomm’s of the world, no matter what their valuations may be, you’re living and investing in the past, not the future. This is the way it is and this is the way it’s going to be from now on.” (The logic of the subset of managers who are well aware that this kind of thing can’t last, but are cocky enough to think they can get out before the final whistle blows — even though they readily admit that most players won’t — needs no further comment on my part.)
NOTE: Since the end of October, when Yellen helped juice the market by shifting gov’t borrowing to t-bills rather than coupons, NDX is up 41%.
