A few days ago, I read a premium article over which went into great detail as to why the three components of what I call the Fed Spread – – most notably, the balance sheet – – render all the Q.T. the Fed is doing moot. In other words, by their arguments, the market was going to roar higher this year anyway. I confess, I felt pretty empty-headed reading the article because it didn’t sink in, although it was enough to strike fear into this bear’s heart.
I was reminded of this just now since it looks like our prediction of near-term S&P prices increased. It’s still beneath present price levels, but the gap is getting smaller. Here are the three individual elements:REPO Rate Chart
Total Assets Chart
Liabilities and Capital Chart
Once they’ve been through the food processor, we can see the two-week target for the S&P 500 is 3846, which isn’t exactly exciting.
The red shows the spread, which is still reasonably meaty.
FR_WALCL Price Chart
The next Fed meeting (which will be its first of 2023) is only nine trading days away, and between now and then, there are hundreds of high-profile earnings reports. There should be plenty of rough seas ahead.