Fed, Triple Witching in Focus This Week

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Our View

To me, the 5-day 210-point rally in the ES and the 1,072-point rally in the NQ make perfect sense. The PPT does not want any big selloffs or corrections before Wednesday's rate cut. It's all part of the Fed’s playbook — but that's not stopping the anxiety surrounding the first rate cut since 2020 and the 50% chance that the Fed will cut rates by 50 basis points. 

Everything looks fine, right? 

After a long period of stocks trending higher and bonds seeing a big rally, things got spooked when the job reports started to weaken following the data revision that occurred on August 21 when the BLS said only 2.1 million payroll jobs were created during the year — 800,000 fewer jobs than previously reported — which has brought monthly job growth down from an outstanding 242,000 jobs to a decent 174,000 monthly jobs created during that period. 

The question for traders is: Was the recent data a sign of things getting back to normal or a recession? 

One thing is for sure, it's not just going to keep going as-is forever, and who better to hear it from than JPMorgan Chase CEO Jamie Dimon, who laid out the "worst outcome" for America's economic future, beyond recession. "The worst outcome is stagflation, and by the way, I wouldn't take it off the table." 

This is the first time in American history that interest payments on the national debt have risen above $1 trillion. "So, it's hard to look at [it] and say, 'Well, no, we're out of the woods.' I don't think so." 

I am not sure where Jamie got his $1 billion a day in interest when it's $3 billion a day, but that doesn't really matter; what matters is we are broke. I asked ChatGPT if the debt was broken down, and everyone in the US would owe $109,000. The offset and safe haven — gold — closed above $2,600 on Friday, and it still looks higher. Rick Rieder, chief investment officer for fixed income at BlackRock, said, “The markets have been on edge for the last month or two. You’ve seen bonds move rapidly from a sanguine view to recession.”

I really don't know how this is all going to end, but the long-term prognosis isn't good. That said, we are not here to fight city hall. If the ES is going up or down, I want to go for the ride.