Staring down a 50-50, hike-or-hold proposition, the market is clearly in a place of uncertainty. Although much can (and likely will) change between tomorrow and the September FOMC, this report is likely to shape the narrative on Fed policy in the short-term, driving price with it.

There are caveats, but we’ll save those for after the report. Likely a matter for Discord.

That said, so long as the SPY lives between 777 and 760, my thoughts on what the market is telling me about the economic backdrop does not change. Nonetheless, going into a report where I feel the outcome may actually be binary — up or down, no middle ground — I wanted to share my insight as an investor and trader.

Typically, this is where I would cut off for subscribers only; however, I want to give my Freebies a little love. Furthermore, running an amazing deal right now for either tier.

Buy 2 Months; Get The 3rd On Me

Deal Ends Friday!

Also, I will be closing enrollment August 31st to focus on evaluating the beta.

So, please help me out and let a friend know!

Upside Risk: A Melt Up

We get a benign report — inflation is in-line or lower — then the market likely breathes easier. Warsh is again proven right to have been patient. The hawks that have been squawking get a little quieter. The melt-up begins. Check out the 8.10.26 edition for why you don’t want to miss a melt-up. TLDR; they’re awesome to be in, but incredible hard to buy into while underway.

Downside Risk: A Sharp Sell-Off

We get a hot CPI report — inflation is higher — it’ll be a bad day for risk assets. Yields and the USD get unruly. Warsh looks late. Hawks get louder. Stocks sell off. Then, the dip buyers come in 5-10% down in the S&P 500.

The earnings are great.

Here’s two of the most recent observations from FactSet:

Earnings growth rivaling that coming out of a period of rolling recessions (post-COVID).

The growth isn’t concentrated. It is broad.

This market sell offs on fears the Fed may hike? People buy that weakness all-day. Fed hike will not alter the expectation of earnings growth we’re witnessing. Furthermore, we’ve stress tested this bull market plenty: tariffs, wars, circular financing, private credit defaults, a hedge fund or two blowing up, etc…

Excuse me if this is hubris… but, I believe the market will find a way to shrug off a potential hike.

5-10% isn’t much for long-term investors, but it can absolutely ruin trades. I am part of the consensus here: I want to be neutral at 3:59PM.

The downside risk is simply to great too be overweight. I don’t know if you take the knockout punch, but you certainly end up with a punch of positions you either need to fold on… or become investors in, if you know what I mean.

Let’s evaluate the upside and downside from the position of a trader who decided to avoid this 50-50 proposition — effectively a gamble — waking up tomorrow.

Upside Scenario:

Stocks are higher. You have cash and a cleaner market.

Downside Scenario:

Stocks are lower. You have cash and a cheaper market.

Thank You For Reading,