On the surface, the Federal Reserve still appears tough, inflation is not stable yet, and there is no rush to cut interest rates; these hawkish remarks are still on their lips.
But the market has long stopped believing this. The latest data shows that the probability of a rate cut in September has soared to 94.4%. Goldman Sachs even predicts that there will be three consecutive cuts starting in September, each by 25 basis points.
In other words, the Federal Reserve talks tough, while the market has already run ahead, and this misalignment of expectations and statements is precisely a typical feature before many market movements start.
Currently, two forces are at play in the market: on one side, the White House urgently needs a market rally to support economic data and election votes; on the other side, the Federal Reserve is firmly guarding the inflation red line, unwilling to let monetary policy become a political tool.
These two sides may not openly confront each other, but the market is using prices to judge who has a better chance.
The current trend feels like it is being pulled by these two forces, but the more it is pulled, the more it indicates that this point has value, because once expectations materialize, the market is likely to explode instantly.
Many people are now worried that the Federal Reserve will not cut interest rates, concerned that U.S. stocks have risen too much and need to correct, but if you think about it, how many times has Wall Street started shouting about risk, and then really collapsed?
The substantial bearish factor was the violent rate hikes by the Federal Reserve in 2022; now it’s just a game of expectations, and every time someone gets deterred by emotions, they end up missing the opportunity.
Moreover, it’s not that no one is buying now; it’s that big players are quietly buying, they just need you to sell first.
At this moment, the question should be turned around: Why is sentiment so poor, yet the market hasn’t collapsed? Who is picking up the pieces? What do they see?