Yo Pit Crazies,
We finally got a debt deal of sorts. No one liked it, which means it is a decent compromise considering spending has been unchecked for nearly 10 years now.
Seems neither party can get it together, so the only adult is the Fed.
… yes, the Fed.
My closest theory is they are raising rates to make the orgy of deficit spending have some bite and end at some point. I think we need new politicians to do that, but that’s another story.
Stocks are rallying now with the uptick in rates, which was definitely not the case last year. Note the recent Fed Funds rate is at 60% chance for a raise in the next earnings cycle.
A lot of folks are going to be sad they missed the rally in the Invesco QQQ Trust (Ticker: QQQ) which is riding the AI wave like no one’s business. That rally is not over as of this morning:
I will say the VIX had a major breakdown on Friday.
What does it mean, and will it continue?
VIX Still Tells the Tale
The SPDR S&P 500 ETF Trust (Ticker: SPDR) had a 10 point run from Wednesday to Friday, all just to get back to where it was last year when everyone thought inflation had peaked. It did peak, but it’s still with us for folks buying food lately. Prices there for ordinary items still seem up 25% or more from 2 years ago.
VIX still managed a down day on a massive realized move in QQQ and SPY. It was a big break too, mostly post-Nvidia Corp (Ticker: NVDA) earnings, similar to post-Apple Inc (Ticker: AAPL) earnings at the beginning of May.
Folks hoping for a crash are not going to get it. What I learned in bull markets is that you have to buy calls and buy cheap protection. The big thing to watch is if we get new lows in VIX this week. I think that would help confirm the crazy AI rally is here to stay.
It would not surprise me if we saw a 15 handle for VIX by Wednesday’s close. An underwhelming debt deal means at least something is working. For several years, normal has been out of fashion so just a return to normalcy should be bullish. Crazy as it sounds.
To Your Trading Success,
AG