US 2YR Yield Suggests No Rate Cuts.

1) FED – Today is “Fed day.” Yippee. Does it matter? Well, in a centrally planned economy...I guess. The market certainly doesn’t expect the Fed to cut rates today with the 2YR Treasury yield is in a bullish (upward bias) mode trading at 3.72% after getting close to tapping and bouncing off support at 3.64%. This is on the heels of a "hot" PPI report this AM. Gee, there's a surprise. The current Fed funds target rate range is 3.5% - 3.75%. With the 2YR trading inside that, we really aren’t looking at a policy mistake…yet. Prior to Oil’s breakout (2/27), options markets implied just a 7% probability of no rate hikes in 2026. That's now increased to 35%. The US 10YR is still seeing inflation as it too tapped and now bounced off support near 4.15%...which also happens to be the top of its trend level. The 10YR yield is now trading at 4.22%.

2) SECTORS – There are three key areas that keep showing up. Different markets, different groups, same setup. All of them just broke out. All of them are now pulling back. And all of them are sitting right at levels that matter. Transports, Emerging Markets, and Small Caps. If these levels hold, it confirms the breakout. It tells us there’s real demand underneath the surface, that rotation is happening, and the bull market has more to go. Now, these could pull back, chop around, even shake people out a bit before resolving higher. That happens all the time. As I wrote yesterday, sentiment is already leaning towards buyers stepping in soon. But, these failing at these levels isn’t what bulls would want.

3) VIX – Other than the VIX hitting the top of its trend range on Friday, what’s changed? Nothing in terms of expectations for inflation (up) and growth (down). It’s anyone’s guess what the Fed might do today, but everyone has an opinion as to what will happen next. Opinions = noise. Those who think the Strait of Hormuz or private credit—the two things pundits and “influencers” on social media seem to be talking about—will derail the market, they’re likely wrong. The things that get talked about a lot tend to NOT be those things that bring wreckage. Look at markets. Financials have already been hit hard. Software has been hit. Big tech has been hit. Credit and private equity have taken pretty steep drawdowns too. It just points out that what everyone is talking about tends to be already priced in. If there’s another leg lower, it’ll likely come from something no one is focused on. That’s how markets work. This is why a systematic approach is valuable—an approach that strips out opinion and emotion and focuses on the movement of market flows. Our flow models had us in a more defensive posture going into today. Let's see what the Fed has to say.