The Fed Just Changed Everything: What To Do Now
In a Nutshell
Fed Chair Kevin Warsh signaled rates may need to rise further as inflation stays above the 2% target, yet markets rallied anyway, adding $500B to equities in the final 40 minutes of his speech. Probability of a September hike now sits at ~59%, but the Nasdaq still pushed to fresh highs despite the hawkish tone. Selective entries, no leverage, and holding cash when unsure are the recommended tactics while support near 715 remains intact.
These notes were generated by AI and may contain inaccuracies.
Markets reacted sharply to data already known, with the only change being Federal Reserve head Kevin Warsh solidifying the information during his Jackson Hole speech. The Nasdaq tested daily lows at 716 before climbing as Warsh began speaking, despite his comments containing no bullish content and highlighting existing market concerns.
Inflation is better but remains sticky, with the Fed maintaining its 2% inflation target. The economy shows strength through solid spending, stable jobs, and rising investment. Warsh indicated rates may not be high enough yet, signaling potential for a rate hike since inflation continues moving away from the 2% target. Most Fed officials preferred waiting before changing rates.
Despite the hawkish tone, Warsh refused to pre-commit to a September rate hike, stating he is committed to discipline rather than a specific decision. This non-committal approach led to an inverse reversal where $500 billion was added back to US stocks in the last 40 minutes as his speech concluded. Warsh is described as optimistic about forming a task force to handle the situation.
The Fed rate monitor tool shows a 58.9% probability that the Federal Reserve will raise rates at its next meeting in 2 weeks and 5 days. Rate increases make borrowing more expensive for individuals and businesses, thereby slowing economic activity. Markets pushed to daily highs of 724 on QQQ despite no new bullish announcements.
Markets demonstrate irrational behavior by pushing higher regardless of negative developments. The only sector currently performing well is AI structure, though it shows signs of uncertainty. All other sectors are falling behind, yet markets continue ignoring these weaknesses. The speaker notes that markets can remain irrational longer than investors can remain solvent.
Shorting the market is not recommended despite overbought conditions and pullback potential, as one day does not indicate a full selloff. Investors should be more selective with trade entries and avoid using leverage at overbought levels. Cash positions are advised when uncertain. The speaker emphasizes that patterns tend to repeat but do not always follow the same path.
Markets are currently testing previous support ranges and are more oversold than overbought. Breaking support around 715 could trigger a gap down to lows of 700. Markets appear weak but require significant selling pressure to break lower. If the Nasdaq begins selling off, correlated assets will follow.
The speaker uses the Webull trading application, which is commission-free for US trades and offers a 12-share sign-up bonus. New users need a $100 minimum deposit to receive up to 12 free shares valued between $3 and $300 each, potentially worth $36 to $3,600.
MSTR declined 6.5% during the session, with the speaker missing the entire move. The stock dropped from highs of 143, with the selloff continuing in recent hours. Current levels appear oversold, with potential for recovery.
The speaker advises against shorting at oversold levels and emphasizes the importance of cashing out when uncertain. Markets are showing signs of support recovery, with other assets expected to follow.
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