S&P 500 produced a tight range day – no news or catalyst for breakout or breakdown. Sectoral view doesn‘t allow me to decisively favor either side in the very near term as stocks have weathered the rise in yields so far very well. Confined to a range with bears unwilling to drive prices below 5,755, and with the 50bp cut well taken already (Kashkari reassured yesterday too), the most pronounced warning sign is probably the Russell 2000 underperformance last couple of days.

Sure the market is complacent, but it would need very underwhelming data from unemployment claims / GDP (prices) to today‘s manufacturing (I am not counting on weak consumer confidence) to force a correction. As I wrote Sunday, consumer discretionaries have a message regarding recession…

(…) as regards Nov, there is almost a 50% chance of 50bp cut, but I‘m not jumping the gun to predict it now as done deal, but it sounds more likely than 25bp. Powell‘s focus will turn increasingly to the job market – after the recent massive adjustments on the job creation side for practically all of 2024, I think the next couple of weeks as a minimum would feature good news on the unemployment claims front (meaning less than 250K initial claims) as we‘re entering a seasonally stronger few months, and consumer discretionaries chart has also a message to say. Still, markets will demand another 50bp cut in Nov..

Yield curve uninversion and recession? No, not this year, I still don‘t think so.

(Click on image to enlarge)

(Click on image to enlarge)

So, the next days and weeks will be about adjusting to the slightly more likely reality of only 25bp Nov cut (60% odds for now) – and the great trades called in the run up to the start of rate cutting, will temporarily just consolidate steep gains in, with ITB, XLI and IGV to name just three, standing out.

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