After the S&P 500 broke below its parallel channel, it has been rallying today on analyst speculation that the Fed might cut interest rates as insurance against a recession this year. The FOMC FedWatch futures are putting the likelihood of a rate cut at 75%, and I expect that number will climb in coming weeks. Expect a good 2-3 day rally as the S&P comes back up into the lower portion of the channel on this news.
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The S&P failed to rally today, due to news overnight that Japan is closing every school in the country until April. However, futures markets overnight greatly raised the odds of an interest rate cut. In fact, they're now split 50-50 over whether we'll get a quarter-percent cut or a full half-percent cut. It will be interesting to see whether coronavirus quarantine news or interest rate cut news predominates over the weekend. I increased my positions a little bit today, but I still remain mostly cash, and I recommend other people do the same. Even if we do get a small rally here, the odds are still pretty good that we get a full-fledged recession later this year.
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We got our rally, and now I think we'll return to weakness as people realize that interest rate cuts may not be enough to address the scale of the business disruptions here.
