In the early morning, the Federal Reserve "declares war," and the world pretends not to hear

— As the 48-hour weekend passed, the market could no longer play deaf.

Friday's close revealed a sense of "dead calm before the storm":

- U.S. stocks experienced dramatic intraday swings and ended slightly lower: the Dow Jones fell 0.09%, the S&P 500 lost 0.05%, and the Nasdaq was down 0.24%.

- The U.S. Dollar Index fell slightly but recovered most of its intraday losses;

- Gold and U.S. Treasuries both rallied, with gold price strongly reclaiming $4,000, and the 10-year Treasury yield dropping to 4.37%.

The market moves did not truly reflect the impact of the “three pieces of bad news”:

First, the gentle decline in U.S. stocks doesn’t mean problems disappeared, but rather that problems have been buried—for almost all news this week was positive, and yet the market fell. Oil prices dropped 10%, core PCE met expectations, the Micron earnings report was nearly perfect, the 10-year Treasury yield fell more than ten basis points, but the stock market still dipped. All the reasons fueling AI’s previous rise suddenly started to fail, and that’s more worth pondering than the drop itself.

Second, the U.S. launched airstrikes on Iran in response to the Hormuz Strait ship incident. The news was intentionally released at 04:30 (Beijing time), half an hour after the U.S. market closed, showing Trump’s care for the stock market. After this news, oil prices jumped 1.4% and U.S. stock futures plunged quickly, but none of this was reflected in the closing figures. Trump can protect the close on Friday, but not the opening on Monday—unless something else diverts attention over the weekend.

Third, a Federal Reserve official publicly stated for the first time that there would be a rate hike this year. In the past, Fed officials would only "hint"—expressing concern about high inflation. But on Friday (around midnight Saturday Beijing time), Minneapolis Fed President Kashkari was explicit in saying a rate hike might be necessary. This can be called the biggest “thunderbolt” to hit the market this week, with the Fed declaring war on the market; from this moment, the U.S. Dollar Index began its sharp intraday rebound, and the S&P 500 turned lower, though other markets largely ignored it.

The market's Monday opening next week will definitely not be as calm as Friday's close. (Wall Street Intelligence)