FOMC, stocks, and BTC

No hike is still not a done deal

The market refuses to zero out the possibility of a Fed hike this week as the on-again off-again shoot and scoot war continues to knock energy prices around like a Pong ball. It’s been Groundhog Day since March as we are repeatedly told that Iran really, really wants a deal but the deals, when they happen, are written in disappearing ink.

Here is the evolution of how Polymarket bettors have assessed the odds of a Fed rate hike at this week’s meeting.

You can attach any number of different trains of thought to why the war stops then starts again including Iran’s apparent escalation dominance, the timing of the World Cup, and now perhaps the U.S. is backing off to keep oil prices from trading at their peak into FOMC. Hard to say. If you’re a President worried about Fed hikes because you don’t quite have the control of the Chair you were hoping to have… Backing off until after FOMC would make sense. Or maybe they’re running out of missiles. Who knows. You can and should not believe anything anyone says during a war, whether that’s domestic or foreign governments, or foreign or domestic media. It’s all propaganda.

Regardless of whether or not there is a strategy, the lower price of oil does take a bit of heat off the Fed in the super short term. Then again, the move from $70 to $100 in the past few weeks also shows them that the war is not over. Despite tanking CPI last month, there is still a decent game theoretic argument for a rate hike if the goal is to re-establish inflation fighting credibility after five plus years of a rolling promise that: “we’re gonna get there in two years.” My view is that the consensus odds (25%) of a rate hike make sense. 75% chance they remain orthodox vs. 25% chance they send a message to markets sounds about right to me.

While at first glance, it’s easy to wave off a rate hike as less than a big deal because it is surely not the start of a meaningful hike cycle (maybe 2 or 3 insurance hikes max, to show the market who’s boss?)… If the market comes to the conclusion that the Fed is serious about getting inflation to 2%, it’s meaningful. Travelling the last mile on inflation (to really get Core PCE down near 2.0%) could require a protracted period of tight policy, even if it doesn’t require too many hikes. Then again, given the level of deficits and the negligible economic impact from 500bps of Fed hikes in 2022-2023… Maybe monetary policy has a blown transmission.

---

Some seasonality to think about

Most are aware of the seasonal equity weakness that comes in August and September. This chart from BofA extracts only the mid-term years. The pattern is similar to non-mid-term years, but more dramatic.

The early October bottom tends to be followed by an absolutely rip-roaring move through Q4 and then Q1 and Q2 after. Not actionable right now, but a decent base case should be chopfest until the end of September, then rally. Via Twitter via Chuck Retzky

If bitcoin is set to become a risky asset again at some point in the future (as opposed to its current status as a thing that does not move), it would make sense that it would also start to rally in early October as the bullish part of the halving cycle kicks in. This chart shows the log performance of bitcoin over the four halving cycles. You can see that returns are getting worse each cycle, as one might expect given trees do not grow to the sky. You can also see that past cycles have topped and bottomed roughly around the same point in the cycle. The sample size is too small to say this is anything beyond pure randomness, but it’s worked out of sample this time, so it’s worth monitoring. One of the biggest reasons the few bears got bearish in Q4 2025 was the halving cycle.

---

Calendar

This week, we get three central bank meetings, double month end, Aussie CPI, and five megatech earnings releases. Whatever you trade, it’s a good week to be at work.

---

Final Thoughts

Google announced equity issuance at $370 and negative cash flow status at $350 and now it’s $320. Will be interesting to see if the textbook view (high capex = lower returns) ends up correct on this one.

I am out tomorrow and back Wednesday. Thanks.

Hi. Welcome to this week’s report. (To read about how I use and trade this report, see here.) Positioning is getting closer to home as the market awaits FOMC. The mixture of softer U.S. data and a credibility-hungry Federal Reserve captain make this week’s FOMC a nailbiter. Another huge clump of euro strikes 1.1400/50 this week.

Almost 25% of all buildings in NYC were built in the 1920s.

The oldest building is the Wyckoff House in East Flatbush, Brooklyn, which was built in 1652.

Check out cool maps showing every NYC building here:
https://www.beautifulpublicdata.com/the-footprints-of-every-building-in-nyc/

Lidar model of a small part of the Upper West Side. See the cruise ships.

good luck ⇅ be nimble