If you want an explanation for why Wednesday’s shift by the Federal Reserve sent stocks stumbling and bond yields and the dollar jumping, just look to a popular children’s book.
Peter Boockvar, chief investment officer at Bleakley Financial Group, in a Thursday note, compared the market setup to the plot of “If You Give A Mouse A Cookie.” In the tale, a boy gives a mouse a cookie; the mouse then asks for a glass of milk, then a straw, then a napkin and so on.
In Boockvar’s telling, market participants are the mouse. “The Fed gives the market some guidance on rates and the market then goes too far with pricing it.”
“Going into yesterday’s Fed announcement and dot plot, the December 2025 contract was pricing in EXACTLY 50 bps (basis points) of cuts next year, thus 2 more of 25 bps. And the dot plot went to EXACTLY that. Instead of accepting that the Fed is now more in-line with the market pricing, market pricing took it even further and now there is just a 44% chance of a 2nd cut by year end 2025. The first cut for next year is now fully priced in by July.”
That means Wednesday’s moves in stocks and bonds weren’t due to “some shock thing” by the Fed, he said. Instead, the Fed merely shifted to what the bond market had already priced in. The moves may reflect “a reversal of a market that got way too giddy over the past month, that got way too frothy in certain parts of the market and priced itself no room for error,” Boockvar said.