The Fed decision
The Fed's move matched expectations, but the unanimous vote surprised. This was a hawkish hike. Kevin Warsh's statements were short and stressed that inflation has stayed high over the last several months. He warned that some near-term data could create headwinds for the Fed. Credibility drove the unanimous decision, which also pushed short-duration yields up. The 10-year yield made an aggressive move higher. The market is now pricing in two more rate hikes by year-end, though that count is questioned given the November election and the next meeting in October. Warsh's ambiguity added to heavy intraday swings in the S&P 500.
On Fed independence, Warsh said independence means the Fed stays in its lane, and that this is a two-way street. So the Fed is holding its position as an independent body. President Trump made comments on rates, but those read as noise rather than signal.
Price action and options
The S&P 500 dropped near the 7500 level, flagged the prior morning. 7500 mattered because of heavy options volume traded and open interest, with the quarterly expiration set for Friday. Buyers stepped in and bought the dip, producing about a 50-point move off the lows, with follow-through the next morning. The path for the Fed's next steps is now clearer.
Futures are recovering the 50-day moving average right now and are trying to break above the 20-day moving average, which has capped price as resistance for the last two weeks. Reclaiming both could break the E-Mini S&P 500 out of a bull flag pattern on the longer-term chart.
Levels on the S&P 500: upside 7640, downside 7560. The market is pricing in less than a 1% move either way. Price has been stuck in a range. A breakout above the 20-day would build confidence for a return to new all-time highs over the next couple of weeks. Friday's quarterly expiration will bring more volatility.
Geopolitics and oil
Positive headlines helped the morning tone. Trump said he believes the Iran conflict will end soon. A Reuters report said China privately asked Iran to use its influence to curb the Houthis in Yemen and cut strikes inside Saudi Arabia. That pushed oil down, briefly below $100 a barrel on WTI. Lower crude is another reason equities are rallying and trying to break above the neckline level held before Warsh spoke.
Tech and the AI power trade
Several news headlines, a risk-on tone, and falling crude are lifting technology stocks. High-beta names are drawing the most attention. Bloom Energy (BE) got price-target raises and a decent note from a couple of firms overnight, on optimism that fuel cell technology can power data centers. Generac (GNRC) rose on its deal with Amazon (AMZN). The power names in the AI theme are catching a bid. GE Vernova (GEV) traded around its 200-day moving average two days ago and is starting to recover some losses. The AI trade is coming back.
Next catalyst: the Trump-Xi meeting in the next couple of days, which could spark cooperation in the technology sector, both in the US and for firms exposed to China. Alibaba (BABA) shows an interesting technical setup. The sectors that need to outperform are doing so for now.
Lennar and housing
Lennar (LEN) shares are under pressure after quarterly results, which fits the picture of higher rates and a pulling-back consumer. Housing data has been weak. Revenue came in at $8.05 billion, a slight miss versus street expectations. EPS was $1.19, about half of what it earned in the same quarter a year ago. Its ability to buy down rates and spark demand appears to be fading.
Guidance: Q4 new orders of 19,500 to 20,500 homes, and Q4 deliveries of 22,000 to 23,000. New-home inventory is still rising, reflecting weak demand. Homebuilders face more competition as existing homes hit the market, stay listed longer, and see price cuts - more competition than even before Covid, which had a housing boom-bust cycle. Shares are down, though not sharply, signaling the housing market is stalling in several parts of the country.
