Delayed Gratification: Post-Powell Plunge Prompts Face-Ripping Risk-On Rally

Yesterday's pump-and-dumps across most major asset-classes was met with a wall of BTFDing in Asia, Europe, and then the US which lifted stocks, gold, oil, and crypto prices (and bonds yields) in a delayed gratification day.

In fact, this is first time that yields rise after a 50bps cut since Lehman (Oct 2008).

It was 'Risk On' in equity-land, post the 50bps cut and the start of the easing cycle with Tech leading to the upside. Broad-based rally with >375 names up on the day in the S&P.

Nasdaq and Small Caps led the surge in stocks (the chart below is from 1400ET yesterday - to include the pump and dump around The Fed and Powell). The Dow is the laggard for now (up only 1%)...

Goldman's trading desk pointed out that volumes +20% today vs the 20dma and ETFs capturing close to 33% of the tape (but they highlight that top of book liquidity stands out as extremely poor, tracking -60% vs the 20dma).

We are active across rate-sensitive pockets of the mkt, specifically Fins (REITS + large cap) and Utes.
LOs are much better buys (1b net demand) led by Tech, Fins, Macro products, and Hcare.
HFs are net for sale, with supply concentrated in pockets of Discretionary, Fins, and Comms Svcs.

The basket of Mag7 Stocks surged back up to record highs today...

Source: Bloomberg

'Most Shorted' Stocks squeezed higher at the open but rolled over for the rest of the day to end only marginally higher...

Source: Bloomberg

Interestingly, rate-cut expectations to year-end 2024 (and 2025) are lower post-Fed crisis-cut. The market still expects 3 more cuts in 2024 though (and four more on top of that in 2025)

Source: Bloomberg

Treasury yields were mixed today with the short-end outperforming...

Source: Bloomberg

...extending the bear-steepening in the yield curve from yesterday's Powell comments. 2s10s is now at its steepest since June 2022 (notably disinverted)...

Source: Bloomberg

Bloomberg's Alyce Andres notes that comments from The Fed supported bear steepening of the US Treasury curve. Here are 10 reasons why bond investors believe the Fed’s actions telegraphed a hawkish cut:

In its statement, the Fed said the assessment of current conditions showed job growth slowed versus moderated previously. That means the Fed views labor market growth as now having a reduced speed. It also compares to a reduction in size, strength and force it described in June.
The Fed’s language around inflation was firmer. It eliminated the characterization about inflation easing in recent months and over the past year. Instead, the Fed emphasized it remains elevated.
The Fed continued to delay the end of QT. This coupled with the 50-bps cut signaled that the central bank clearly sees moves in the policy rate and balance sheet as independent.
Dissention from Governor Michelle Bowman, a Fed hawk, in favor of a smaller cut.
The dot plot showed a narrow majority favored lowering rates by an additional half-point this year over a 25-bps cut.
The longer run median dot rose to 2.9% from 2.8%. That’s the dot the Fed will use as its anchor.
Forecasts were optimistic with the median dot for growth at 2% over all time frames and longer-run unemployment and inflation steady at 4.2% and 2%, respectively.
Fed Chair Jerome Powell said the economy is basically fine, telegraphing a broadly optimistic view with a hawkish emphasis on the fact that the Fed isn’t in a rush to lower rates.
Bond investors voted with their feet -- opting to take profits on wagers for lower rates. Traders also threw in the towel on bull steepeners in favor of bearish ones viewing the 50-bps rate cut as a recalibration of monetary policy rather than a sign of concern about the health of the labor market.
That move continued Thursday with global investors adding to bear steepener positions under the notion that the Fed is likely to stick the soft landing.

The dollar chopped around today, hitting highs in the early Asia session and lows in the early European session before bouncing back to practically unch...