To The Moon

The upcoming week will be pivotal for sentiment, as markets balance between monetary optimism and valuation fatigue. Let us examine the key dynamics.

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1. Policy Outlook — Will the Fed Cut Again in October?

A second consecutive 25 bps cut in October is possible but not guaranteed.

Arguments for a cut:

The government shutdown, now in its sixth day, may dampen short-term GDP growth.

Leading indicators such as the ISM Manufacturing PMI and consumer sentiment have softened.

Real yields remain elevated, tightening financial conditions despite prior easing.

Arguments against a cut:

Powell explicitly noted “upside risks to inflation.”

Core PCE remains sticky around 2.9%—3.0%, above the Fed’s comfort zone.

Cutting too aggressively could undermine the Fed’s inflation-fighting credibility and trigger a renewed commodity rally.

Base case: No cut in October, but a strong dovish tone maintained. The Fed is likely to pause and signal a “data-dependent” stance, preserving optionality for December.

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2. Market Implications for the Week

Equities:

The market may trade sideways to slightly higher, as investors price in the dovish bias while awaiting Powell’s Thursday speech.

Any hint of another rate cut could trigger a short-term melt-up in tech and growth stocks.

Conversely, if Powell underscores inflation vigilance, expect a modest pullback—particularly in speculative sectors that have run ahead of fundamentals.

Bonds:

Treasury yields are likely to remain range-bound, with the 10-year note anchored near 3.6–3.8%. A dovish tone could push yields down, boosting equity valuations further.

Gold and Dollar:

The dollar may ease modestly, supporting gold’s consolidation above the $4,000 level.

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3. Are We Entering “Irrational Exuberance”?

There are early signs of speculative heat, though not yet at full-blown bubble levels.

Mega-cap tech valuations have expanded faster than earnings revisions.

Retail trading activity and ETF inflows have surged.

Market breadth is narrowing, with gains concentrated in AI, semiconductors, and a few large-cap names.

The environment resembles late-cycle optimism rather than sustainable rotation. Investors appear to be chasing performance ahead of year-end, buoyed by liquidity expectations.

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4. Strategic View

Short-term traders: Consider tightening stop-loss levels or hedging with index puts, as volatility may spike after the FOMC minutes or Powell’s remarks.

Long-term investors: Maintain core exposure but rebalance away from overheated sectors.

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In summary:

No second rate cut is likely in October; Powell will stay dovish but cautious. Markets may grind higher early in the week, yet exuberance is building beneath the surface. The tone now borders on “rational optimism with speculative edges”—a stage that rewards discipline more than euphoria.