- Friday's trading session saw the S&P 500 index enjoying positive gains, as Wall Street traders continue to overlook economic concerns.
- However, despite the possibility of a push towards the 4100 level, the E-mini contract is currently trading around the 200-Day EMA, which could pose challenges in the near future.
- The market is currently focused on the Federal Reserve's next move and the liquidity situation, rather than the broader economy.
Expect Extreme Volatility Throughout 2023
With much noise surrounding the Fed's monetary policy, finding a solution is not going to be easy given the situation they created. Because of this, I think we have extreme volatility for the rest of the year, and this next swing higher won’t be any different.
Currently, most of Wall Street believes that the Federal Reserve will cut rates soon, which the Fed is resisting. After providing essentially free money for 14 years post-Great Financial Crisis, the Fed's seriousness in fighting inflation is being ignored. Wall Street's narrative changes weekly, with claims such as "the consumer is in great shape" and "the Fed will have no choice but to cut" designed to encourage stock investment. It's important to remember that Wall Street's objective is to sell stocks. In other words, there’s always going to be some type of narrative that the Wall Street traders will be willing to step on to camera and sell you. Unfortunately, this is the market that we live with, and you need to trade what you see, not what “should be.”
Despite Wall Street's refusal to listen to the Federal Reserve, the market will likely continue to rally in the short term. However, dysfunctional markets may eventually lead to significant breaks and drastic changes. It's important to keep in mind that the economy and the stock market are two separate entities. In other words, in a perverse negative correlation, the worse the economy does the more likely Wall Street will celebrate as it will force the Federal Reserve to loosen monetary policy. (At least that’s what Wall Street elites believe.) However, as long as inflation runs hot, money is going to be tight and it’s probably worth noting that the real trouble will probably begin in the credit markets as a lot of major players in the S&P 500 are essentially walking zombies if they cannot get financed at a low rate.
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