What the Recession and FOMC Mean for Stocks

Stocks have broken out as we identified yesterday. The fact that stocks and bonds have both caught a bid gives us insight as to how the markets are interpreting the FOMC rate hike and the GDP numbers yesterday. As we all know, GDP numbers came in negative, the second negative reading, which puts us formally in a recession by definition. Furthermore, the Fed only raised rates by 75bps (some sources were predicting 100bps). This suggests that they will likely pivot to a more dovish stance, and be forced to lower rates, or take a more accommodating stance to fight the recession, meaning that stocks are clear to rally. There is still a lot of open interest with puts in the 4000's, but when cash heavy investors start to unwind we could easily punch through. The S&P 500 broke out, clearing 4009 with ease, and hitting 4068, our next target. We broke through that and are making a run for 4122, hovering just below that. If we see more momentum come through then we will likely test 4178 or 4188, we will likely face resistance there, but will have reestablished the value area between 4068 and 4188 from June. If we retrace, watch for support at 4009, a relative high and technical level.