FED : Powell's Market Upheaval: $2 Trillion Surge Sparks Global Rally, but Fed Faces Divergent Views on Rate Cuts 

Powell made a significant shift, triggering a market upheaval in bonds, stocks, rate-cut expectations, gold, oil, and cryptocurrency, causing the dollar to plummet.

The outcome: a $2 trillion surge in the combined value of US bonds and stocks over the last three days, totaling over $7 trillion since the November FOMC. Global equity and bond markets added $4 trillion this week alone, surpassing $15 trillion since November.

The exuberance prompted three Fed officials—Williams, Bostic, and Goolsbee—to counteract the excessive 'animal spirits' and challenge the Fed's projections.

Market reactions were swift, with nearly seven rate cuts for 2024 already priced in. The S&P 500 achieved a seven-week winning streak, the longest in six years.

Following Powell's actions, 49% of S&P 500 members were deemed 'overbought,' marking the highest breadth of overbought conditions since February 1991. The small-cap Russell 2,000 set a record, going from a 52-week low to high in just 48 days, the quickest turnaround in its 45+ year history.

To counter the market exuberance, Fed's Williams diverged from Powell's dovish stance, cautioning against premature rate cuts and highlighting the unpredictability of data. Bostic echoed a less dovish tone, suggesting only two rate cuts in 2024, likely after Q3. Goolsbee maintained a dovish stance but tempered expectations, emphasizing the need to reassess policy based on inflation trends.

The aftermath: March rate-cut expectations dropped from 100% to around 66%, gold retraced some gains, the dollar stabilized, and the short squeeze lost momentum.

Despite overall gains, long/short hedge funds faced challenges, with favored shorts surging and preferred longs lagging during the dash-for-trash trend.

Treasury yields fell, prompted by FedSpeak, narrowing the curve by 26-32bps on the week, with the 10Y Yield below 4.00%, and Bitcoin and Ethereum down around 4.5% for the week.

The dash-for-trash continued, impacting L/S hedge funds, while oil (Brent) closed green for the first time since October, and NatGas rallied.

The Fed's reverse repo facility witnessed a significant drawdown, raising questions about liquidity concerns.

As the market speculates on Powell's next move—whether it be an end to QT or a restart of QE—the question remains: Is the resurgence in stocks nearing its end, or will Powell surprise with further unconventional measures? The market contemplates the potential for a shift from "no rate cuts considered" on Dec 1st to "6 rate-cuts possible" on Dec 13th.