Since the December 5 QuickTakes titled "Contrarian Indicators Showing Too Many Bulls," we've been warning that bullish sentiment is too high and setting the stage for a pullback. In Sunday's QT titled "Game of Drones," we reiterated: "Is it time to panic in the stock market? It's always best to panic before the crowd does. The issue isn't too many mysterious drones, but rather too many charging bulls."
Today's panic selling was triggered by the Fed's hawkish rate cut and indications that there might be only two rate cuts next year, not four because inflation is turning out to be hotter and the economy is proving to be more resilient than the FOMC expected. That's been our forecast since August.
Investors might also have been upset to learn that the circus is still in town in Washington, DC. The continuing resolution (CR) that would extend federal budgets to March 14, 2025 is running into severe headwinds in Congress. Conservative Republicans in both houses, plus President-elect Donald Trump, and DOGE co-heads Elon Musk and Vivek Ramaswamy have come out against the 1,547-page CR, which almost no one has read. Without a CR, the government will shut down on Friday.
