Stocks chopped all over the place this morning before rallying through the afternoon. The Dow, S&P, and Nasdaq Composite all closed higher on the day as a result of some intraday dip buying.
“It’s a very quiet session thus far,” said Vital Knowledge founder Adam Crisafulli in a morning note to clients.
“Stocks have climbed off their lows from earlier in the morning, but sentiment is still very gloomy. The consensus playbook for the week seems to be anticipating a brief rally around the FOMC, which most people plan to use as an opportunity to book profits in preparation for further downside (a return to the June lows is thought by many to be inevitable).”
Treasury yields got the session off to a bearish start after the 10-year rate climbed to 3.51%, notching a new 11-year high. Yields soared in anticipation of Wednesday’s rate hike as the Fed is expected to raise rates by, at the lowest, 75 basis points. But following August’s stubbornly high CPI reading, a 100 basis point hike is seemingly now on the table, too.
“We think a 100 bps hike would unnerve Wall Street, as it would imply that the FOMC is overreacting to the data rather than sticking to its game plan, and would increase the likelihood that the FOMC will eventually overtighten and lessen the possibility of achieving a soft landing,” said CFRA’s Sam Stovall.
And though a bigger hike would do more short-term damage, the market’s long-term prospects don’t seem all that bullish given the current investing climate.
“It was common to hear some variation of ‘TINA’ (There Is No Alternative), the idea that one needed to be long stocks and bonds because cash offered so little. Low yields were not the primary reason why stocks rallied over that time; global equities and global equity earnings simply rose by the same amount (~100%),” said Morgan Stanley strategist Andrew Sheets in a note to clients.
“The market is still facing late-cycle conditions: inflation that is too high, policy that is tightening, a yield curve that’s inverted, and a slowdown in growth that is ahead not behind.”
That’s all bearish stuff provided that the Fed sticks to its guns and hikes into the teeth of a vicious slowdown.
For VICI Properties, though, it seems like everything’s just fine. The stock enjoyed a good run over the past few months and is now looking at a bullish continuation after setting a double bottom. VICI closed above the 10 and 20-day moving averages this afternoon, too, and the stochastic indicator suggests the stock has plenty of room to run.
For those reasons, it might make sense to take VICI long with a trade trigger of $33.94, above today’s high, as the general market looks toward the FOMC meeting on Wednesday.
