The Front Page WSJ Article That’s Driving Todays Trading

The Federal Reserve is likely to cut its short-term interest rate by a quarter of a percentage point next week — but then may be ready for a breather.

– Greg Ip, “Fed May Consider Pause In Rate Cuts” (subscription required), The Wall Street Journal, Thursday April 24, A1

We’re seeing a massive rotation out of the so called fear trade – being long treasuries, short the dollar, long commodities – to dollar strength and people buying tech and financials.

– Peter Boockvar (subscription required), Equity Strategist, Miller Tabak

The above is the first paragraph in a front page WSJ article by Greg Ip this morning.  And it pretty much explains todays trading.

Gold and oil are selling off substantially.  The dollar is rallying.  Treasuries are down.  And stocks are higher all around.

Why?

Well, if the Fed is close to pausing in its rate cutting campaign, that means less easy money which means lower inflation which is bearish for gold and other commodities, which are trading partly on inflation concerns, and bullish for the dollar.

Further, if the Fed feels like they can take a rest that must mean they are feeling better about the economic situation which is bullish for stocks.  Hence, stocks are higher.  And treasuries are lower as people sell them to put money to work in stocks.

Makes sense, yeah?  And seriously, that’s what’s going on.