Pockets of illiquidity may not be systemic 'yet'; but certain aspects risk that despite most economists suggesting the Fed will stabilize things before that's a wide issue. Well, we don't know how that will sort-out; but central bankers in general don't have good track records for what basically is 'threading needles' (as that's essentially what is oversimplified as media reports the Fed's 'plan').

Meanwhile, we meandered through a consolidation session on what was for the most part a market already reflecting the key Quarterly Expiration. That's why it's Quadruple Witching (a change made some years ago); so as to make the impact of the closing of notional open interest milder than often seen.

With the current example; most of it was completed before Friday, which does make it a bit unusual that the usual pundits (as far as I've noticed) ignored the Expiration as a factor. True, the Fed was the past week's event; but Quarterly Expiration was the distinguishing aspect given the very large open interest. As noted, it set up prospects for S&P to have a move the other way; 'soon'.

One reason to say 'soon' might relate to upcoming Congressional testimony in the days ahead, by Fed Chairman Powell, which could roil markets either way at least in reflective response to whatever he says. If he dwells too much on a 'hell-bent' crusade to make up for lost time and drive inflation out of the nation (at the expense of what in terms of jobs and economic unwinding?).

At the same time I understand the need to defend the Dollar's low purchasing power; just odd that the FOMC waited so long (we've called for this since last year); and strange that our Fed only reacts when there's a crisis or typically in late fashion, which means they aren't fully maintaining stability in the system; or at least not 'optimally'. It's sort of like (as I can relate) taking blood pressure meds and the levels come down to acceptable or even normal; but you need more to get to optimal levels; and hopefully everything is managed properly before there's an 'event'. In economic terms 2007-'08 led to events; 2018 was starting too, the Fed figured that out, and reversed posture; so did markets.

How much payback is in the market (discounted) is the debate. We do have a very important re-balancing occurring at the end of the month; and I suspect it will see notable changes including some smaller-caps rebounding into July as well. Whether more downside lies ahead after that depends on many similar variables as led to the accelerated selling the preceded; including Oil prices.

In sum: it's near S&P 'fork-in-the-road' time; but we won't know immediately if the fork is merely a detour around the 'destruction zone' or whether it's part of the preparation (o.k... new construction) zone. Depends on known variables.

So yes, the Chairman's comments next week matter; collapse of homebuilder stocks might be interesting (not commonly suggested) as too much inventory coming on the scene. Precise opposite of media cheer-leading about housing in months just past. Of course the Fed managed to scare buyers big-time.

Separating sectors (like homes versus travel) is really not purposeful for the moment. Interest rates went up so rapidly that refinancing went away almost instantly; and basically stocks haven't priced-in a prolonged dry spell. Severe recession or not will determine some outcomes; and we think we're in a basic recession already, and have been (as I said 'even if people don't see it').

As to Friday's action; it was sort of a mixed day; much as suspected after the slide, during a major Quarterly Expiration; ahead of a 3-day holiday weekend and more remarks forthcoming from the Fed Chairman. We also got some on Friday few noticed, from Russia's Putin, saying the USA is no longer central to global economics (he wishes!).

With all the focus on recession or not (hint: already ongoing); few focus much on Ukraine; and a hiatus of conflict there would mean a lot. Starting with Oil.  A reset of investors' expectations depends largely on how relentless Powell is as relates to interest rates and QT; and perhaps how relentless Putin is with his ravaging war that needs to come to an end one way or another.

The dip in Oil prices is not related to the uncharted aspects we've noted; as much as it is a process; this market can get worse 'if' they don't address these realms. If they do; then we'll see Oil drop towards 80 (Friday was a good start and I'm the guy warning of Oil dropping while Wall St. was pushing for buying Oil stocks after the huge move of the past couple years). I'm not going to play the game some analysts are about specific price points for Oil for now; while a 'white flag' by Russia (as unlikely as that would be) would be a big trigger that complements sliding Oil, should it occur. Otherwise Oil dipping helps 'some'.

At this point Oil is dropping primarily because of the economic contraction as we believe already underway for some time. Hence the drop isn't as dramatic as it would be upon cessation of hostilities in Ukraine.

Anyway by virtue of what they're doing, the Fed clearly signals they want to sucker punch the economy so rapidly that spending slows dramatically. I think that's visible already; but I believed recession has already been underway.

Bottom line: Economic activity contracting eases Oil, which fights inflation to a degree; and now as everyone's jumping onto our argument about this effect it probably helps the already-forecast short-term S&P bounce. However, what would be a general bounce carries only modestly bullish short-term prospects as we've noted, not because of any technical level; but because serious major challenges - particularly war and famine - loom as impediments to extending a revival with any gusto and enthusiasm.

Yes, the market would discount that in advance; so we're giving it opportunity to try. The problems include the Fed, the war, the Summer season; the spread of Covid (unfortunately again as Carnival Cruises (CCL) apparently tried to conceal a bit), and a few other uncertainties; the least notable being domestic politics to the extent they diverge from what matters: ending war; lower Oil, and a lower pace of inflation; which evolving together would trigger a Fed pivot away from draconian approaches, even if they want to proclaim a victory over inflation.

Turnaround time ahead of re-balancing; with some trepidation about hiccups in the event Chairman Powell misspeaks; making it overtly evident (or appears as if) he wants to break the economy in order to save it (rhetorically speaking).