"There is time to go long, time to go short, and time to go fishing."

That’s a quote from legendary trader Jesse Livermore.

If you’re a trader, this is a terrible time to be in the markets.

It’s probably time to go fishing.

Uncertainty is sky high. Everyone’s desperate for a pivot.

“Wall Street has been hung up on this idea of pivoting for months,” says our colleague Bob Byrne, “and frankly, it’s cost investors a fortune.”

Below, Bob will reveal why the market is acting irrationally… and whether or not he’s bullish on a Fed pivot in the near future. 

Before we go there…

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And read on.

Will They or Won’t They (Pivot)

Bob Byrne

Investors have been waiting for the Federal Reserve to pivot from its restrictive interest rate policy since it first raised them on March 17, 2022.

Unfortunately, most on Wall Street have ignored one Fed official after another as they said rates need to remain elevated for a prolonged period to ensure a sustained reduction in inflation.

As a reminder, the Fed hiked rates by 25 basis points in March, 50 basis points in May, and 75 basis points in June, July, September, and November. And according to the CME FedWatch Tool that tracks the market’s expectation for future rate hikes, most investors expect the Fed to hike rates by another 50 basis points in mid-December.

Wall Street has been hung up on this idea of pivoting for months, and frankly, it’s cost investors a fortune. After the early November rate hike, we heard from San Francisco Fed President Mary Daly, Cleveland Fed President Loretta Mester, Kansas City Fed President Esther George, and Dallas Fed President Lorie Logan. They all communicated virtually the same message.

Federal Reserve officials believe the economy could require a higher interest rate for some time. And this is code for stop with all the silly pivot positioning. Put another way, while the Fed is likely to reduce the size of its rate hikes, the FOMC appears unanimous in its decision to keep rates elevated until inflation is well on its way back toward 2%.

So are these bear market rallies warranted?

Probably not.

But that doesn’t mean stocks can’t continue to rally for a while longer. Remember, the best and most powerful rallies occur during the worst markets. You probably don’t remember how stocks traded in October 1931, but the Dow Jones Industrial Average gained an incredible 12.34% on October 6. But for the entire month, the index only gained about 2%.

And in November 1931, the DJIA plummeted by 18%. A more recent example is October 13 and 28, 2008. The DJIA gained around 11% on both days but still declined 8.6% for the month and racked up losses for the following four months.

Again, the most powerful rallies occur within the context of the worst bear markets. And while the recent rally may have further to run, the fact that rates are likely headed higher, S&P 500 company estimates need to come down, and the odds of a recession in 2023 remain elevated are all reasons to avoid getting too bullish too soon.