From: zerohedge

Powell “Pivots”, Sends Dow To Record High With Election-Year Rate-Cut Projection | ZeroHedge

The Powell pivot begins. Dec 1: “It would be premature to … speculate on when policy might ease.” Dec 13: Rate cuts are something that “begins to come into view” and “clearly is a topic of discussion.” What a difference two weeks can make. https://t.co/Vox8LKSgf0

— Nick Timiraos (@NickTimiraos) December 13, 2023

The Dow hit a new record high after The Fed signaled – via its ‘dot plot’ – that it has pivoted from a pause, dovishly delivering what the market was pricing in (and Powell didn’t even get close to trying to walk back the exuberance)…

But while The Dow hit record highs, it was a bloodbath for hedgies today…

The worst day for hedgies since June 2021…

It seems like the last 30 minutes saw some nasty moments…

Fed Chair Powell said absolutely nothing about the massive easing of financial conditions (the tightening of which was the reason for them to pause at the September meeting).

And then pivoted to a major rate-cut trajectory for 2024 (election year).

In Sept, 5 Fed members expected three cuts or more

In Dec, 11 Fed members expect three cuts or more.

Of course, Powell explained, when asked about the election year:

as he frontloads rate-cuts (from 2025) ahead of 2024 presidential elections.

As The Fed shifted dovishly towards the market, the market shifted even more dovishly – now pricing in 150bps of rate-cuts in 2024 (an election year) – bringing forward the cuts from 2025 (a non-election year)…

The market is now pricing in a 75% chance of the first rate-cut by The Fed in March…

However, amid all the excitement, on a real rate basis, The Fed’s policy restrictiveness will be basically unchanged by the end of next year IF their inflation and rate forecasts are met

Bonds ripped higher (in price) with the short-end outperforming (2Y -27bps, 30Y -12bps)

The 2Y Yield plunged over 30bps from the intraday highs – the largest daily drop since the SVB crisis in March. Other than that, you have to go back to the GFC (2008) to see moves like this…

Interestingly, 10Y Yields tumbled to 4.00% and found support there (which stalled stocks)…

The yield curve (2s30s) massively bull-steepened…

Is 4.00% 10Y the ‘fear’ level that prompts equity bulls to lose faith in the soft-landing/goldilocks narrative? Stocks were on a roll though and closed near their highs with Small Caps up 3.5% and the rest of the majors up around 1%

The Fed triggered the biggest stock-buying program since Nov 2022…

This was the second biggest short-squeeze in stocks since Nov 2022…

The Magnificent 7 stocks did not exuberantly participate in the yield-collapse the way you think they should have…

But retail faves are #winning…

Meanwhile, over in Homebuilder fantasy-land – new highs as the housing market collapses ‘because, hey, The Fed will slash rates next year, right’… except the only thing that will drive that kind of a massive sudden rate cut is a massive sudden recession… which is not good for homebuilders…