Bulls Have Eye Of The Tiger Ahead Of Fed

Risin up, back on the street
Did my time, took my chances
Went the distance now I’m back on my feet
Just a man and his will to survive

Its the eye of the tiger,
Its the thrill of the fight,
Rising up to the challenge of our rival,

– “Eye Of The Tiger”, Survivor

In my imagination, all across Wall Street, on trading desks, at mutual fund and money management companies, I can picture them: they’re at their computers, they’re feeling confident, the mood is upbeat, and “Eye Of The Tiger” is playing at medium volume in the background.

On the “strength” of a 0.6% annualized rise in 1st quarter GDP (BEA GDP Release) and ahead of the much anticipated Fed Decision at 2:15pm EST, the bulls have rallied all the major indexes.  The S&P is poised at the brink of 1400 and appears ready to breakout on almost anything the Fed might decide to do.

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Some are saying that the report is essentially indication of recession because .8% of the increase is due to a build up in inventories rather than end demand. 

Barry wrote an eminently reasonable post “Congratulations! Its A Recession!” arguing that for all practical purposes this report indicates recession because the inflation deflator being used underestimates inflation and regardless of the number we are experiencing a “significant decrease in economic activity”, which is a criteria for the NBER, the official arbiter of recessions. 

The Captain points out that consumer spending, up only 1% annualized, was notably weak, including a 1.3% decline in nondurable goods spending, only the fourth decline in this category in the last 15 years.

But reason is beside the point today.  If you could put the bulls response into words it might be something like: Ain’t no thing but a chicken wing. 

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Next up is the Fed Decision in about 2 hours at 2:15pm EST.  The consensus is for a 25 basis point cut to 2.0% and more emphasis on inflation concerns and the suggestion of a pause in the near future in order to asses the impact of prior rate cuts in the statement.

Some are even suggesting the Fed could pause today.

Either way, it’s going to be interpreted, along with the GDP number, that the economy, while not great, is holding up well enough for the Fed to step back, pause and start to concern itself more with inflation. 

My feeling is that we’re going higher today.  Today’s the day.  We’re going to breakthrough 1400 on the S&P.  The bulls will be euphoric.  I’m looking for a moment of maximum complacency and minimum fear.  The question then becomes: Will it last?