We may be entering the ‘kicking and screaming’ phase

The Fed was always going to be late to cut rates and certainly won’t cut them fast enough when the cycle starts. That’s the natural reaction to getting burned by inflation in the covid era.

It’s been awhile since we’ve had a ‘normal’ rate cutting cycle so it’s worth a reminder about what happens and what always happens: The market turns into a whiny teenager. It starts kicking-and-screaming for rate cuts, with equities bleeding on anything that isn’t overtly dovish.

Given the reaction to the FOMC, we’re there. Yes, the AI trade is still carrying markets but it’s a chair with one leg. Cyclicals in particular are getting wrecked. Have a look a steel shares; here’s Cleveland-Cliffs, which is leveraged towards auto manufacturing, it’s down 32% since early April.

The breadth in the stock market is abysmal.

In this dynamic, the market doesn’t necessarily like worsening economic data, as it only highlights that the Fed is behind the curve. That would break the ‘bad news is good news’ mode.

This article was written by Adam Button at www.forexlive.com.