Investors await Fed's rate cut decision amid speculation and mixed signals

• The market continues to churn at the highs.
• FOMC goes behind the iron curtain tomorrow morning.
• Speculation runs rampant – is it 25 or 50 bps?
• Bonds await, Oil is lower, Gold churns also at the highs.
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Fatigue… exhaustion… is that what we’re seeing in the broader market, even as AI continues to dominate the conversation (just look at the Nasdaq and the Mag 7)? The strong week ended with a whimper. The Dow lost 275 pts, or 0.6%. The S&P slipped 3 pts, barely down 0.05%. The Nasdaq managed a gain of 98 pts, or 0.4%. The Russell gave back 24 pts, off 1%. The Transports fell 140 pts, down 0.9%. The Equal Weight S&P dropped 58 pts, or 0.8%. And Mag 7? They carried the torch, gaining 516 pts, up 1.7%.

Meanwhile, University of Michigan consumer sentiment took a hit, now echoing the lows we saw in May. That tells us consumers, like investors, are bracing for multiple rate cuts — three, to be exact — this year.

But make no mistake: the only conversation that matters is what the Fed says and what the Fed does. We’ll get that answer Wednesday at 2 pm. Until then? Silence. The Fed is in blackout mode, so don’t expect anything from voting members. What we might get is chatter from non-voting members or maybe even a leak — from one of the Fed’s “Deep Throats” like Goldman or Nick T at the WSJ.

The only reason for a leak would be if Powell & Co. were having second thoughts — say, shifting from the expected 25 bps cut to 50 bps — The leak would give them insight into how investors might react. And that’s where the interpretation game begins: if 25 was expected but we get 50, does that signal panic? Does the FED know something we don’t? (Negative) Or is it the Fed trying to play catch-up after a year of bad BLS data? (Neutral to Positive) Either way, traders, investors, and algos will be left to decide what it really means.

For now, expectations are for a 25-bps cut. Unless Goldman drops a “special report” or Nick T drops a piece explaining why 50 is on the table, we can rest assured 25 is the move. The real test comes at 2:30 pm on Wednesday, when Powell steps to the podium for the press conference lying out not just what they decided, but what to expect at the October FOMC meeting.

So far, no whispers from Goldman, no hints from Nick T. The market is pricing in exactly what we expect — and waiting for Powell to either confirm it or flip the script.

Now, Bloomberg ran with a story yesterday acknowledging that the Fed will cut — even amid divisions inside the committee — as they “grapple with a slowing labor market and stubborn inflation.” Those divisions matter: some members are calling for 25 bps, others for 50 bps, and a few still want to do nothing.

Philly Fed President Patty Harker summed it up best: “it is not obvious that’s going to happen here in a robust way.” Translation? It could be one-and-done… or maybe not.

Here’s the thing — the market is already pricing in 75 bps of cuts this year. That could mean three 25s, or a 50 plus a 25. Either way, that expectation helped push the indexes to new highs. But if Patty’s comments are right — and Powell’s language at the presser doesn’t back up the market’s desire for lower rates, then investors are going to have to adjust their expectations. Capisce?

In the end, the FOMC is juggling three things: the data, the economy, and the pressure mounting from the White House. And don’t forget — Stevey Miran still hasn’t been fully confirmed to replace Adriana Kugler as Governor, but that could change today – when it goes to a full Senate vote.

The move sent bonds just a bit lower…. – the TLT lost 0.4%, the TLH down 0.4% while the AGG lost 0.1%. The 10 yr is now at 4.06% (this after testing 3.99% last week). 30 yr is yielding 4.68%. Recall – yields have been collapsing because of what investors think is going to happen. A move that suggests rates will not decline by 75 bps this year will cause bonds to retreat and yields to rise. So sit tight. Bonds are flat this morning.

Oil broke down below trendline support ($62.87) to trade at $62.70. We are teasing the most recent lows at $61.75 – a level that appears to be holding, but if we test it and break – then it would not surprise me to see oil test $60 fairly quickly. This morning – oil is up 36 cts at $63.05.

Gold closed at $3643/oz….. up 1.7% for the week – it is up 10% in the past month. Now while many expect gold to continue to advance – we might see some consolidation this week – ahead of and after the FED announcement. Gold feels a bit ‘fatigued’ as well and that is causing some traders to be more cautious for the moment. The path of ‘least’ resistance is down…so if gold starts to retreat, do not be surprised if we see a swift move lower. This morning gold is down $2.50 at $3,640.

Remember – In addition to the eco data, the ongoing geo-political issues are bullish for gold…. Any change in those issues will be a reason for some to sell gold.

US futures at 6 am are mixed….. Dow futures up 103 pts, S&P’s up 7, the Nasdaq down 15 -NVDA under pressure – down $5 or 3%. This after China found them guilty of Anti-trust law (a 2020 deal) to try and put pressure on Bessent and the trade talks. The Russell is up 8.

Eco data is all about NY State and the Empire Manufacturing Index – expected to be up 5, which is DOWN from 11.9 last month. Tuesday will bring Retail sales, NY FED Services Activity, Import/Export prices, Industrial Production and Capacity Utilization. Wednesday brings us ‘the decision’.

European markets are churning – France up 1% while the UK is down 0.1%. EU trade data due out later this morning. The UK is all abuzz as they wait to welcome President Trump and 1^st lady Melania at Windsor Castle tomorrow to meet with King Charles and Queen Camilla. Wednesday they are off to speak to PM Keir Starmer.

The S&P closed at 6,584 down 3 pts. This morning – markets are marching in line as the week begins. The trendline that showed 6,535 SHOULD have been resistance is now short-term support (very short term). My sense is that we churn until Wednesday at 2 pm……followed by a presser at 2:30…. Listen to his words, listen to his tone and more specifically what he doesn’t say out loud.

Cowboy cornbread (The early hustle)

A recipe inspired by the book. Every bull market has its roots in simplicity (like this recipe). At the dawn of the 20th century, America was still a land of pioneers and cowboys — building railroads, forging industries, and laying the groundwork for the modern economy. Livermore’s beginnings mirrored that grit: basic tools, high risk, and a little faith.

Ingredients: 1 cup yellow cornmeal, 1 cup all-purpose flour, 1 tbsp baking powder, 1 tsp salt, 1 tbsp sugar (optional), 1 cup buttermilk, 1 egg, 2 tbsp melted butter or bacon drippings, 1 tbsp butter for skillet

Preheat oven to 400°F and place a cast-iron skillet inside.

Mix dry ingredients in one bowl, wet in another.

Combine, stirring gently. Remove hot skillet, swirl in butter, pour batter.

Bake 20–25 minutes until golden and pulling from edges.

Serve warm with butter or honey.