We head into two big central bank meetings with the most important stock markets in the world sitting on big technical trendlines …
Both the S&P and the Nasdaq sit on this big trendline that represents the trend from the October lows, which was marked by Fed signaling that the tightening cycle was over.
The trajectory of the trendlines represents the view that financial conditions will be easing.
That said, here we are nine months later, and the Fed has done a lot of talking, but has delivered no rate cuts. And based on the Fed's Financial Conditions Index, conditions have indeed eased from the extreme levels of October, but remain "tight," and continue to act as a headwind to GDP growth.
Add to this, the Bank of Japan has, over the past four months, delivered a policy change that tightens global financial conditions (extracts global liquidity). And they may add to that with tonight's decision.
With the above in mind, the policy expectations that induced the trendlines in the charts above, haven't materialized. Considering that, and the current policy environment, we probably see a break of these lines, and a further correction for stocks. We will see.
