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S&P 500 did a fakeout yesterday and closed on a weak note. Nothing sectorally encouraging, and even the mere comparison of Russell 2000 to emerging markets downswings reveals that more is to come today – extending also to real assets. Monday and Tuesday volatility are to turn out higher than I would appreciate and illustrate the degree to which markets ran with unreasonable optimism during the Fed blackout.

Quoting yesterday‘s not to miss analysis:

(…) The rumor is still being bought, and selling the news would be overcome. The Fed would of course go with 25bp while not commiting to 50bp Mar (25bp are practically baked in the cake, and when I look at the short end of the curve and various yield spreads, I agree with that. The Fed will try to talk some good restrictive game, and will do its best to keep rates at restrictive levels for as long as possible, but Fed funds rate at 5% appears as sound estimate before recession rubber meets the road in Q2 2023.

The central bank‘s attention would understandably shift from fighting inflation to the realization that slow growth (aka stagflation, the prospect of which I first raised in Jan 2022) has become as much the economic reality as earnings recession and other real economy woes (housing, manufacturing, job market together with GDP painting a. deceptive picture of strength if you look under the hood).

Markets had been running on the best-case scenario where nothing could go wrong – Fed pivoting, soft landing, inflation down, job market resilience, credit quality, consumer strong, and earnings (with revenue, margins, and guidance) not suffering. It isn‘t turning out that way, and will increasingly less turn out so.

In such an environment, tomorrow‘s FOMC merely not showing a dovish face while reiterating prior positions, is to be perceived as hawkish even if it doesn‘t turn more hawkish than it was already.

This is what provides for all the „selling before the news“ unfolding – a tad deeper than the „springboard“ setup.

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Let‘s move right into the charts (all courtesy of www.stockcharts.com).
 

Gold, Silver, and Miners

Precious metals are still short-term vulnerable but haven‘t topped. Silver not only could, but also did, temporarily suffer more than gold, where $1,900 followed by $1,875 shouldn‘t be broken.
 

Crude Oil

The crude oil upswing is deferred, waiting for FOMC to get out of the way. Stabilization would come first from oil stocks, and that also needs the FOMC statement and conference not outdoing the Dec one. These beaten assets could be bought in the aftermath actually, mirroring the tech, crypto rally of the laggards.
 

Copper

Copper is to probe lower values, and if $4.10s don‘t hold, the $3.82 area should.

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