Been There, Done That, Time to Move On
The first hike since 2023, telegraphed at Jackson Hole, Delivered. A positive reaction in the run-up, and to the FOMC result, is a bullish positive, suggesting a market far more focused on near-term growth than the ensuing, eventual slowdown, a hike will bring - who are we to argue. The market shrugging off the hike is meaningful signal - not only have indices reclaimed critical support levels, a move up bodes well for risk-on scenarios, notwithstanding longer-term issue that will linger. Growth sectors, tech in particular, have lagged the broader market - a resumption of leadership by tech is bullish in more ways than one. While one swallow does not a summer make, price action's growth read through is unmissable. Our bullish premise remains dependent on the market regaining momentum and “growth” resuming leadership - initial signs are supportive.
- FOMC Decision - The FED delivered a 25bp hike to 375-400bp, a decision widely expected by the market. While we retain the view that supply shocks can't be solved through monetary tightening, the more important message is that despite the “dot plots” factoring in another hike by Dec-Jan (>80% probability, implied by futures), markets have taken that in stride.
- Growth Sector Reaction - Tech heavy Nasdaq is up slightly as of this writing - importantly, XLK (tech ETF) is not only outperforming defensives, but also the high octane energy ETF (XLE). Even more telling, semiconductor ETFs (SMH & SOXX) are outpacing the broader market.
- What's In The Price - Detaching from narratives, and focusing on price is a more robust way of addressing the difficult “what's in the price?” question - Tech's Jun-Jul, 13% point underperformance reflects the sum of all fears - not only is the “hawkishness priced in, price action suggests a growth biased, positive outlook.
- Lines In The Sand - The “must defend” 7400-7600 zone for the S&P remains. A successful, sustained breakout above 7800 remains the “blue skies” zone.
FED Rates - Cut, Pause and Then Raise
End of Tech Underperformance?
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