What looked like a dove turned out to be a hawk — JJ pulls back the sheets

So, what looked like a dove is really a hawk — is that what we learned yesterday?

JJ came out swinging. He told us point-blank:

“In the committee’s discussion at this meeting there were strongly differing views about how to proceed in December. A further reduction in the policy rate at our December meeting is not a foregone conclusion — far from it. Policy is not on a preset course.”

Now — that line has changed everything. Until he said it, the futures market was pricing in a 90% chance of another rate cut in December. But as soon as those words hit the tape, the odds plunged to 50%, and the algos — well, they didn’t take kindly to that.

In addition – JJ told us that while they will ‘stop the shrinkage’ of their treasury holdings (at $5 billion/month) – essentially ending QT beginning December 1^st. But they will continue to allow their portfolio of mortgage-backed securities (MBS) to run off at the $35 billion/month rate. The runoff will be reinvested back into the treasury markets to help maintain stability. This move comes as funding costs have been rising causing the FED to reconsider the plan to avoid the same reaction we witnessed in September 2019. Now while he did not ADMIT that the system is under stress, the move is acknowledgement that they are concerned. And that concern will most likely be reflected in stock prices over the coming days.

Then came the kicker — the dissent. Stevy Miran voted for a 50-bps cut, while Kansas City’s Jeff Schmid voted to do nothing at all. That’s the first time in decades the Fed had two dissenters pulling in opposite directions — one screaming “cut more,” the other saying “stop already.”

And that, my friends, was the pivot. The narrative flipped from “the Fed’s easing” to “maybe they’re not.” Bonds got whacked, yields spiked, gold got sold (stronger dollar logic), and the broader market went from up to down in a flash.

Now, the day wasn’t a total disaster — NVDA became a $5 trillion company and that helped the Nasdaq and the Mag 7 stay in the green. There was also the anticipation of META, MSFT, and GOOG earnings that kept the algo’s and traders on edge. But the rest of the tape? It bled. The Dow ended down 75 points — a 400-point swing off the high. The S&P finished flat. The Russell lost 22 (-1.2%). The Equal Weight S&P dropped 1.1% even as the market-cap S&P looked unchanged — again showing the divergence between the “real” market and the Mag 7-driven headline index.

And the sectors told the story: Real Estate (XLRE) got crushed (-2.7%) — higher yields, plain and simple. Consumer Staples (XLP) followed (-2.4%), and you’d ask, “Why? Aren’t they defensive?” Sure — but here’s the rub: when JJ took a December cut off the table, bond yields shot higher, and higher yields instantly reduce the appeal of slower-growth, dividend-oriented names.

Basic Materials (XLB) -2%, Financials (XLF) -1.7%, Healthcare (XLV) -1%, Discretionary (XLY) -0.8%, Comms (XLC) -0.25%. The only green on the screen came from Industrials (+0.25%), Energy, and Tech (+0.7%).

So yes — what looked like a dove turned out to be a hawk in disguise. Let’s see what happens today. And here’s a peek – futures are lower – across the board.

In the end – JJ pulled back the sheets to expose what we all knew – the goal to manage and satisfy the dual mandate (maximum employment and price stability) is proving to be tricky and my bet says that the FED is willing to put up with higher inflation to protect the labor market – which is a bit confusing because right now the labor market does not appear to be in trouble (Unemployment is 4.3%* not 5.3%) – but maybe they have inside information that the rest of us don’t have yet…..Just a thought!

4.3% is considered full employment – capisce?

In any event, the announcement sent the bond market reeling — the TLT lost 1% while the TLH fell 0.8%, pushing yields sharply higher. The 10-year yield jumped 10 bps (a fairly aggressive move) to 4.07%, while the 30-year rose 8 bps to end the day yielding 4.62%.

Gold, which had seen dip-buyers in the morning after the recent pullback, got whacked again — closing down $22 at $3,930. Now, that might not sound dramatic but remember — those morning dippers were paying $4,030 an ounce before the Fed announcement. That’s a $100 intraday swing.

This morning, the dip-buyers are back — taking gold up $50 to $3,981 — but I think that strength gets sold as JJ’s new narrative gets dissected and digested. Gold’s recent run was driven by expectations for both an October and December rate cut, with early 2026 cuts on deck. That’s now up in the air — which is why I think we go lower before we go higher, unless we get clarity on the statement.

And here’s the next thing to watch — with the blackout period now over, expect a full parade of Fed officials hitting the circuit, each with their own “interpretation” of what went on behind the iron curtain and what they think happens next. That, my friends, is sure to create another round of volatility into the markets.

Oil is holding steady at $60.20 – nothing to see here.

This morning US futures are lower…. Dow futures are down 122 pts, the S&P’s -9, the Nasdaq -30 and the Russell is flat.

After the bell – we heard from META, GOOG & MSFT…. META is trading down $70 or 9% at $688/sh after they announced a rise in capex spending…. that is spooking investors….do you think? Marky is paying some of these guys $1 billion+ pay packages (ROI is still unknown) …The stock is trading down and thru the short & intermediate trendlines and is about to test long term at $678… Will it hold? We are about to find out.

GOOG is up $20 or 7% while MSFT is down $20 or 3.6%.

So far we have heard from 25 more companies and the beats continue…only 4 have disappointed. LLY rockets higher – up $37 or 4.5% after announcing that sales of Mounjaro and Zepbound are surging…..causing them to raise guidance on revenues and eps. We will hear from AAPL and AMZN after the bell!

Let’s see if the ongoing better than expected earnings season can blunt JJ’s new narrative…..

European markets are all lower….…. The ECB is expected to hold rates steady today when they announce….and like here – there is a deluge of earnings reports to pay attention to.

Trump had a successful meeting with Xi Xi – agreeing to extend their tariff truce and roll back of export controls. China has agreed to cooperate with the US over the fentanyl crisis, and they have resumed buying soybeans and other agricultural goods. Looks like another ‘win’ for the US.

The gov’t continues to be shut down – the Dems have now voted 13 times to keep the gov’t closed and it’s getting ugly…..you can feel the tension building. Senator Thune read them the riot act last night and told them to smarten up. Schumer wants none of it and so the shutdown continues. Newark airport came to a complete halt yesterday afternoon – think work stoppage due to staffing issues…. Remember – no paycheck for you, but there is a paycheck for Schumer and the squad.

The S&P closed at 6,890 – essentially flat on the day – after testing as high as 6920 in the early part of the day. This morning the action suggests a weaker open – but we know how that can change on a dime, especially if the markets dismiss JJ’s narrative and it might once we start to hear from the other members. In any event – the next FOMC meeting is only 41 days away! Let the countdown and speculation begin!

Now it will be interesting to see what happens today – will we see more divergence or not? Keep your eyes on the Equal Weight S&P to get a sense of the market mood.

Veal scaloppine in lemon sauce – (sounds perfect to me!)

For this you need: 10 pieces of Veal scaloppine pounded thin, s&p, flour, butter, oil, dry white wine, parsley – finely chopped, chicken broth, fresh lemon juice.

Take the pounded scaloppine pieces and season with s&p – then dredge in the flour and shake off any excess.

In a lg sauté pan – melt ½ stick of butter and add in a splash of olive oil so that the butter does not burn. Brown the veal on both sides for about 2 – 3 mins. Remove and set aside.

Now in the same sauté pan – add in 1 cup of the white wine and 2 cups of chicken broth. Bring to boil and then add the lemon juice and the parsley. Add the veal back to the pan and simmer for about 5 mins.

Serve on warmed plates with the vegetables of your choice. Always serve a mixed green salad dressed with olive oil, lemon juice, s&p, and oregano.