… in short: the Fed is not in a position to save equities:
To put this into perspective, the budget deficit for the fiscal year 2024 came in around $1.9 Trillion, or 6.7% of GDP. There is no other year in US history where the budget deficient was this large outside of a major war, like WW I & WW II, or dealing with a major recession, like 2008. It is unheard of to have fiscal spending this high, in an expanding economy, with historically low unemployment.
From this excessive level, what will deficit spending be if we enter a recession? The biggest misstep the FED and government can make at this juncture would be pivoting while bonds are going down. Until we see Treasury bonds (TLT) breakout and move higher, the FED and government run the risk of losing control of the bond market in a disorderly manner, which would also further tank equities.
This is what’s concerning right now. While we have been trained to hang on until the FED can swoop in and save us, we are being held hostage by the bond market, which is only reacting to decades of reckless spending finally coming to a head.
If a 20% drop in equities, vertical drop in oil prices and growing certainty of a global recession is not enough to get bonds off the floor, what will it take? The bureaucrats that created this mess run the risk of losing control of the bond market if they act too soon. They have no choice but to sacrifice the stock market until bonds catch a meaningful bid.