May 7, 2025
Yesterday's market was almost a carbon copy of Monday's action as stocks opened lower, battled back midday, then closed weakly. It was day two of the pullback following the 9-day rally, and so far it doesn't look like anything to be concerned about, but today is day two of the Fed's FOMC meeting and while there are no interest rate changes expected, any updates to their monetary policy could be a market mover.
The Fed is not expected to cut interest rates and as I have been talking about, we have seen some stability in yields recently. The 10-year Treasury Yield is holding below some old broken support, and yesterday it ticked back below the 50-day EMA, but it remains above the 200 EMA, which is in the same neighborhood. This isn't the bond market screaming recession yet but that is still a possibility, especially with the uncertainty over the end game for tariffs.
The Fed Funds rate tends to follow the 2-Year Treasury Yield, but that's currently 3.79% and the Fed Funds Rate is 4.25% - 4.50% so they have room to cut.
Here is a multi-year comparison between the 2-Year Yield and the Fed Funds Rate (FFR). They were late in hiking rates in 2021 and into 2022 and that may have contributed to the harsh inflation the economy experienced. Then in 2023 and 2024 the 2-year moved sharply lower a couple of times but the Fed held pat. They finally started to cut in September of last year, but the 2-year has been moving down faster than the Fed. being late could hasten a recession, but they are also concerned about inflation so they are being patient.
Source: https://en.macromicro.me/charts/762/us-fed-funds-rate-treasury-bonds-rate
There is a 97% chance of the FFR remaining 4.25% - 4.50%. However, by the September meeting...
... the probability of a rate cut is 96.5%, with a 50% chance that there will be two 0.25% cuts and an 18% chance of three.
If that's the case, why not cut now? I'm sure they don't want the label of being late again, but one caveat in their case is that they don't know what tariffs will do to the economy. The assumption is it will slow it down, so again, why not cut? If there is a recession, they'll be accountable for explaining why they waited when they might have avoided it.
The High Yield Corporate Bond Fund (HYG) is a representation of the condition of the credit markets and they have been on quite the run since the stock market lows. A bull market cannot survive if the credit market is in bad shape so the Fed is certainly watching this (or something similar) closely. It looks good but there is some resistance in the area that has been holding it back for the last week or two.
We will get the Fed's monetary policy statement at 2PM ET, and it will be followed by a press conference from Jerome Powell.
The futures were up meaningfully on Tuesday night after it was rumored that U.S. Treasury Secretary Scott Bessent and top trade official Jamieson Greer would be meeting with their Chinese counterparts this week in Switzerland to talk trade.
The S&P 500 (C-fund) has stalled at the April 2nd high and has now pulled back for a couple of days. Yesterday it fell through some rising support but that 50-day average caught it. 5500 could be a target for this pullback but with the Fed about to speak, they could hasten that, or send stocks higher again and leave the pullback in the rear-view mirror. If this is a new bull market, a 2 or 3 day pullback can usually be bought, but the chart is in a weird area where we're not officially out of the bear market yet. It's close according to my data and even that 200-day average - but it's not official.
DWCPF (S-fund) was down sharply but it still managed to close above the 50-day EMA and its rising support line at the bottom of that channel. 2100 is turning into stubborn resistance but this chart has been moving up almost daily for a month so a little pause shouldn't mean too much unless or until support gets taken out.
So far my theory about the dollar and ACWX (I-fund) are not playing out, but technically it is still intact, although barely. That is, I believe the dollar is trying to bottom which could make US stocks more attractive than the I-fund in the coming months. But as usual, the market seems to move in one direction longer than seems probable. The I-fund's bullish momentum is still leading the TSP funds.
The BND (F-fund) popped higher yesterday as yields slipped lower. Again, this had some support and may have been due for a little relief, but the range has been narrow and probably not worth wasting our precious limited IFTs with that possible roadblock near 73.25.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
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Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We may use additional methods and strategies to determine fund positions.
Yesterday's market was almost a carbon copy of Monday's action as stocks opened lower, battled back midday, then closed weakly. It was day two of the pullback following the 9-day rally, and so far it doesn't look like anything to be concerned about, but today is day two of the Fed's FOMC meeting and while there are no interest rate changes expected, any updates to their monetary policy could be a market mover.
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The Fed is not expected to cut interest rates and as I have been talking about, we have seen some stability in yields recently. The 10-year Treasury Yield is holding below some old broken support, and yesterday it ticked back below the 50-day EMA, but it remains above the 200 EMA, which is in the same neighborhood. This isn't the bond market screaming recession yet but that is still a possibility, especially with the uncertainty over the end game for tariffs.
The Fed Funds rate tends to follow the 2-Year Treasury Yield, but that's currently 3.79% and the Fed Funds Rate is 4.25% - 4.50% so they have room to cut.
Here is a multi-year comparison between the 2-Year Yield and the Fed Funds Rate (FFR). They were late in hiking rates in 2021 and into 2022 and that may have contributed to the harsh inflation the economy experienced. Then in 2023 and 2024 the 2-year moved sharply lower a couple of times but the Fed held pat. They finally started to cut in September of last year, but the 2-year has been moving down faster than the Fed. being late could hasten a recession, but they are also concerned about inflation so they are being patient.
Source: https://en.macromicro.me/charts/762/us-fed-funds-rate-treasury-bonds-rate
There is a 97% chance of the FFR remaining 4.25% - 4.50%. However, by the September meeting...
... the probability of a rate cut is 96.5%, with a 50% chance that there will be two 0.25% cuts and an 18% chance of three.
If that's the case, why not cut now? I'm sure they don't want the label of being late again, but one caveat in their case is that they don't know what tariffs will do to the economy. The assumption is it will slow it down, so again, why not cut? If there is a recession, they'll be accountable for explaining why they waited when they might have avoided it.
The High Yield Corporate Bond Fund (HYG) is a representation of the condition of the credit markets and they have been on quite the run since the stock market lows. A bull market cannot survive if the credit market is in bad shape so the Fed is certainly watching this (or something similar) closely. It looks good but there is some resistance in the area that has been holding it back for the last week or two.
We will get the Fed's monetary policy statement at 2PM ET, and it will be followed by a press conference from Jerome Powell.
The futures were up meaningfully on Tuesday night after it was rumored that U.S. Treasury Secretary Scott Bessent and top trade official Jamieson Greer would be meeting with their Chinese counterparts this week in Switzerland to talk trade.
The S&P 500 (C-fund) has stalled at the April 2nd high and has now pulled back for a couple of days. Yesterday it fell through some rising support but that 50-day average caught it. 5500 could be a target for this pullback but with the Fed about to speak, they could hasten that, or send stocks higher again and leave the pullback in the rear-view mirror. If this is a new bull market, a 2 or 3 day pullback can usually be bought, but the chart is in a weird area where we're not officially out of the bear market yet. It's close according to my data and even that 200-day average - but it's not official.
DWCPF (S-fund) was down sharply but it still managed to close above the 50-day EMA and its rising support line at the bottom of that channel. 2100 is turning into stubborn resistance but this chart has been moving up almost daily for a month so a little pause shouldn't mean too much unless or until support gets taken out.
So far my theory about the dollar and ACWX (I-fund) are not playing out, but technically it is still intact, although barely. That is, I believe the dollar is trying to bottom which could make US stocks more attractive than the I-fund in the coming months. But as usual, the market seems to move in one direction longer than seems probable. The I-fund's bullish momentum is still leading the TSP funds.
The BND (F-fund) popped higher yesterday as yields slipped lower. Again, this had some support and may have been due for a little relief, but the range has been narrow and probably not worth wasting our precious limited IFTs with that possible roadblock near 73.25.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
To get weekly or daily notifications when we post new commentary, sign up HERE.
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We may use additional methods and strategies to determine fund positions.
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