Weathering a more hawkish Fed - with broad presumptions of more 'stormy weather' for markets - has been the challenge given the tone of most pundits and Fed officials this week. Interestingly we thought this would enhance S&P holding or rallying, with almost-scripted unanimity of negativity as a backdrop.

As shorts were again run-in; as everyone focused on QT which is and will be a factor especially later in this month; it begs the question: what happens if an event (like peace) breaks out and somehow takes down Oil prices. We surely don't know that will happen; but if it did, markets will have already discounted the obvious progression of rate hikes; although nominally the balance sheets.

The market has been bamboozled by not having a classic capitulation; while I thought it was 'optional' to get that; because prices had previously cratered so much. I don't know that inflation has actually peaked; but that idea was also a prospect; given some waning that ultimately supports the Fed pivoting later. I am aware that Brainard (Fed Vice Chair) says no peak yet; well we'll see. For sure they want to see 'data'; but that often gets provided well 'after the fact'.

The Fed has progressed (as often noted) from prolonged excessive ease to a protracted plan of rate hikes until inflation breaks. My point is simply that they assume powers they don't fully have, without resorting to breaking growth in a recovering American economy which is indeed struggling under pressure from inflationary impacts, even beyond the impossibly-high fuel and food levels.

Yes the Fed is still trying to react to 'data' and not considering limited effects a central bank can have (as this is a global inflationary situation); given we had inflation before Putin's war began, and hence a good bit of it could resolve 'if' the war were to end, or at least arrive at a ceasefire. Nothing is assured, and of course the Summer can be rocky regardless; which is even the case in the so-called normal (or frequent) seasonal patterns.

Meanwhile we got our washout sufficiently a couple weeks ago; the market is sorting of 'needy' in terms of proving itself; and is feeding on the negativity as I've observed. Hard to say that the 'concentration of bearishness' after sliding a long time is enough to put away storm flags; but we thought so temporarily at least these past couple weeks. So are we at the 'been there done that' with respect to downside; probably at least face chop; with the bears vulnerable to bullish surprises; since the bearish variables are broadly well-known. Pricing a hawkish Fed into the market has been going on for months; so it's feasible.

In sum: this means the Fed doesn't know where they're 'really' going to go with rates, even if they tell us they do 'as if' they had a roadmap for it, which they don't. Russia has done a job on the market with their Ukraine invasion; a factor that really dominates the extension of price rises, which preceded war.

Saturday Update

'A gray area'  is where near-term market prospects were anticipated to find themselves, and that denotes the upcoming struggle in the new week. We did get the down-up-down pattern on Friday, which was my bias for the session.

It does not mean that the majority of algo-driven S&P big-cap bulls surrender much further before counterattacking, whether surmounting this past week's relief-rally peak; quite likely continuing a series of alternative shuffles for now.

There are times when prospects for the next move are clear; and others where hosts of protagonists will contend something dramatic, then it doesn't happen.

Go back to what I called (on that day) 'The Inger Bottom' of March 23, 2020; and we were perfectly clear that it was a time to buy. And incidentally there is nothing that clear-cut going on now; although two weeks ago we thought very clearly it was time for a relief rally; and then a pause into this weekend,

Now S&P and Nasdaq will both be challenged; most likely with a bit more selling following the down-up-down Friday (heavier on Nasdaq by the way); and then a crucial rebound intraweek, which will likely be resisted. Stay tuned.