Today, the FED cut rates for the first time in many years, choosing to go big with a 50 bps cut. This suggests rates are headed lower for a while.
However, on the long end of the interest rate spectrum, rates didn't go down at all, rather they jumped quite a bit. The 10-year US Treasury experienced a 7 bps bump. IEF, the iShares 7 - 10 year Treasury Bond ETF, fell almost half a percent. When a bond fund declines in value, it means the interest rate in the bond portfolio goes higher. While the yield curve is still inverted, it got a lot flatter today. I believe this is the key potential development to watch over the next few weeks. Will lower rates on the short end result in lower rates on the long end? It doesn't do the US economy much good if long-term rates do not drop in sympathy with short-term rates as most loans are tied to long-term rates.
The other key development to watch has been with us for a couple of months and that is the carry trade currency pairs. The USD:YEN and USD:CHF both tanked once the FED announced a larger cut. Somehow, both of these pairs reversed course around 1:30, right when floor trading shuts down in Chicago, and closed about where they opened today. Both of these pairs are trading at multi-month lows and if the USD loses more ground to either of these critical currencies, it could reignite the unwind of the carry trade.
Just about everything experienced a wild day today, as one might expect. However, I don't think anyone could have expected the FED to cut 50 bps and the end result would have been declines in major stock indexes and a big drop in gold. Let's spend just a moment on the SPX. The SPX has formed a triple-top pattern. Obviously, it can go one of two ways from here, assuming it doesn't keep going sideways. If the SPX can find a way to break above and close higher than today's peak, that would be a very bullish sign for the index. However, in the short-run, the index has established two back-to-back days where it failed to close at new highs. I call this a FAT pattern, FAT standing for "Failure at Top". Most market technicians would refer to the trading action the past two days as bearish doji bars. Regardless of the name, the SPX has has formed a bearish pattern that historically has led to lower prices. The gluttonous liquidity in the market could negate the bearish pattern so we'll need to wait a day or two to see how it is resolved. If the SPX closes below the low of the past two days, further declines would be more likely.