Yo pit crazies,
I called for a 3 percent move in the SPDR S&P 500 ETF Trust (SPY) around the Fed.
I got it in about 24 hours, and I've got a read on what comes next.
The setup at the start of the week looked grim: AI was going to eat us after Anthropic's CEO spent the weekend calling for an AI slowdown, and Nvidia fell 3 percent Monday.
Oil was back at highs too, with Brent crude touching $110 (the most since May) after the Houthi rebels left the hills and stormed the open coastline.
I'd think the big Houthi advantage was staying in the hills, so we'll see how the Saudis deal with adversaries in the open.
Add to this, as my pal in Capitol Gains Frank Gregory would say, the Chinese bots did their work this weekend.
See his comments here on the future of energy and who will lead the AI charge.
He and I take the last half hour, and it's worth a listen for some stocks to watch.
Disinformation is a thing, and new Fed Chair Kevin Warsh isn't going to play that way.
Warsh Delivered the Hike and No More Guidance, BADDABING
SPY didn't like the FOMC statement. Neither did I, but that didn't stop me from closing some put spreads (bets that pay when a stock drops) in Weekly Profit Cycles. I got good prices but not the best prices because stocks… stopped… going… down.
As I tell my students, if stocks aren't going down, they're going up. Warsh's report shows strong economic growth but a lot of demand for money. The 10-year Treasury yield closed Wednesday above 5 percent, its highest since 2007.
I took this as Warsh isn't going to do QE (Fed bond buying that pushes yields down). He's going to let interest rates squeeze Congress without saying so. Thursday the market really liked it, see below.
SPY 10-Day Chart
I got my 3 percent. SPY dropped 1.6 percent from Wednesday's high to its low, then gained 1.7 percent from that low to Thursday's close.
This is yet another FOMC roller coaster. At each of Warsh's three meetings, SPY has swung 1.6 to 1.8 percent top to bottom on decision day, against about 1 percent on a normal 2026 day, and it rallied the next day every time.
The ride really started in 2025 when President Trump took the oath. SPY's realized volatility (how much it really moves) ran about 19 percent that year, the most since 2022, when Janet Yellen and Fed Chair Powell missed the runaway inflation we still enjoy.
That volatility also makes my Two Way Trade (it pays on a big move either way) viable and profitable for the foreseeable future. I booked a 28 percent gain on my SPY put spreads Wednesday, and the rest of the trade looks very good.
Gridlock on the Way
The polling says Republicans will likely lose either the House or Senate. Democrats lead the generic ballot by eight in the latest NYT/Siena poll, and Nate Silver's model gives them a 59 percent shot at the Senate.
Republicans did stop the most egregious spending but didn't cut and didn't D.O.G.E. either. That'll likely keep conservative voters away in November and leave us with a gridlocked U.S. government. Given what Congress achieved, it'd be hard to tell the difference in the before and after.
Heck, a budget would be nice given what we pay Congressmen for Life these days. Congress hasn't finished its spending bills on time since fiscal 1997.
Warsh's two big points were:
- Vigilant on inflation and oil prices
- The underlying economy is growing, mostly due to AI (he cited strong productivity and robust capital investment)
That's what the market ultimately wants to hear. Warsh doesn't even submit a dot to the dot plot (each official's rate forecast). Dot plots be damned, we want someone minding the store.
For another upside catalyst, the Ukraine war has to end or the oil has to flow through the Strait of Hormuz. Either will send stocks flying, and we got close on the latter. Gulf diplomats had a meeting with Iran set for Monday on an Omani plan to reopen the strait before Oman postponed it.
VIX (the market's fear gauge) closed Thursday at 15.49, down from 17.71 on Fed day and its low close of the week. That's usually bullish SPY.
VIX 30 Day Chart
As a reminder, stocks rallied into the 2024 election with VIX holding up the whole way. SPY set a record on October 18, 2024 with VIX near 18. There's a decent chance history repeats itself.
SPY closed Thursday at 762.70, about 2 percent under its August record. The steady tail off in VIX into Thursday's close means some SPY all-time highs could happen into the election.
Hope this was helpful,
Andrew Giovinazzi