Market Pulse Premium: Big Events

Reviewing the flurry of economic news this week from the Federal Reserve and the US Treasury.

Below is the annotated S&P 500 chart that I shared in the previous Market Pulse Premium issue sent out last Friday (4/26).

The S&P 500 on last week Friday (4/26) with my prediction marked as the orange arrow.

Let’s see how the market has moved since then.

S&P 500 is moving as expected (orange arrow from the past week).

I expected the S&P 500 to consolidate around the mid Bollinger Band line after the large bounce last week and so far, despite lots of volatility over the past few days, it looks like it’s doing just that.

This was another successful probabilistic call for the past week, and now it’s time to look forward to what’s next.

To have a sense of where we’re headed next, it’s important to review the events of the past week.

This past week, we saw several major economic events happen. The three most important ones that I think should be discussed are:

1. The Federal Reserve’s May FOMC meeting

2. The US Treasury’s Quarterly Refunding Announcement (QRA)

3. The ongoing collapse of the Yen

As expected, we saw the US Treasury announce that the government needs to raise a significant amount of new debt in the next two quarters. Over $1 trillion!

The Federal Reserve wants to help the US Treasury with such a heavy lift in new debt issuance by make a massive surprise reduction in quantitative tightening, from -$60 billion in US treasuries each month to just -$25 billion.

At the same time, on the other side of the globe, the Yen has been free-falling as the Bank of Japan continues to insist on 0% interest rates.

What a busy week!

Here’s what I think are the second and third order effects of the events on the stock market.

💡 But First, Where Is The S&P 500 Headed Next?

Two weeks ago, we saw the market sell off aggressively.

Six red days for the S&P 500. This was something we haven’t seen since the summer of last year.

The market staged a big rebound after the massive selling and now we are going through sideways consolidation.

All this market volatility comes against a backdrop of sticky US inflation, war intensifying in Eastern Europe and the Middle East, and the US Treasury having to issue a huge amount of new debt over the rest of this year.

Given this context, this is how I think the market moves next week.

Chart with prediction arrow below.