The market has "forgiven the war," but has not understood the Federal Reserve.

Source: Wall Street Intelligence Circle

The market has forgiven war, but has yet to understand the Federal Reserve.

The day after the Federal Reserve announced its decision, a strange scene played out in global markets: "the dollar and US stocks rose, while everything else fell":

The US stock market rose across the board on Thursday—the Dow Jones up 0.14%, S&P 500 up 1.08%, and Nasdaq up 1.91%;

The US Dollar Index at one point hit the 100.92 level intraday, while the 10-year Treasury yield returned to 4.45%. Meanwhile, gold, bitcoin, and crude oil saw declines of varying degrees, with gold prices about to fall below $4,200.

First, the rise in US stocks was due to Trump single-handedly creating positive news for the market. The “Waller Shock” was originally meant to plunge the market into a deep hole.

· The first antidote: immediately after the US stock market closed on Wednesday, a Middle East peace memorandum was released to end the blockade, with a post shouting that “oil is flowing”—US stock futures turned upwards;

· The second life-saver: a few hours before the US market opened on Thursday, it was announced that Apple and Intel would jointly make chips in the US (an aggressive AI stimulus, precise life support). Without this news, it would have been difficult for US stocks to rise last night.

Whenever the stock market falls, Trump will immediately find a way to make it rise (he simply can’t let it fall). This indirectly shows that the market now is so fragile it’s basically just a skeleton (AI momentum), and it has to be fueled constantly with “super positive” news.

Second, oil prices have slightly declined, volatility has dropped sharply, and the market has almost fully responded to news from Iran. For stocks, the benefits of falling oil prices have likely been digested—the market can only rely on itself going forward, and the only thing the market now believes in is AI.

Third, gold is about to fall below $4,200, the 10-year Treasury yield is back at 4.45%, and the dollar index has surged—these three signals are highly consistent, all pricing in the “Waller Shock.” Waller’s attitude towards the market is “no forecasts, no comfort, no responsibility.” He wants to restore something long missed—surprise. Waller will use one “unexpected plunge” and one “unexpected surge” to make the market forget the idea of a “central bank backstop.”

Next Monday marks the beginning for global markets, having “forgiven war,” to be forced to “understand the Federal Reserve.”