Middle East Uncertainty and the Fed Give Investors Pause
Technical conditions are deteriorating with the S&P 500 at its lowest level in 10 sessions.
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Market indications are lower on Friday morning in what should be a thin session after the Juneteenth holiday. Many market players are taking the opportunity for a four-day weekend, and with great uncertainty about what course of action President Trump may take in the Middle East, there isn’t a lot of desire to expand market exposure right now.
Oil is holding steady at highs, indicating nervousness about the likelihood that the U.S. will join forces with Israel in more aggressive action to eliminate Iran’s nuclear ambitions. Trump said the decision will come within the next two weeks, which seems to have triggered some movement toward more active negotiation.
The Israel-Iran uncertainty will weigh on the market on Friday, but there is also the issue of the Fed interest rate policy that was released on Wednesday. Overall, Fed Chair Jerome Powell was more hawkish than anticipated. Inflation expectations were increased, and growth projects were lower. To put it in more stark terms, the Fed increased the odds of possible stagflation.
The president is outraged at the failure to cut rates as recent inflationary data has been quite good, but the Fed and many economists are insistent that it is just a matter of time before the full impact of tariffs is felt and increases inflationary pressure. These experts have been dead wrong so far, but when the pros are wrong, they try to excuse it by claiming that they are just a little early and will be proven correct eventually.
Technically, the indexes have been struggling with waning momentum for a couple of weeks now, and there are indications of a rollover. In the early going on Friday morning, the S&P 500 is trading at its lowest level in 10 trading seasons. The Magnificent Seven MAGS has a slightly better relative strength, but momentum is obviously slowing, and the issue now is how much of a pullback will develop.
With so much uncertainty in the front of the weekend, Friday’s session is unlikely to offer much opportunity. I’ll be focused on managing positions and don’t foresee any significant buying.
At the time of publication, Rev Shark had no positions in any securities mentioned.
