Stock Market Down Even as Oil Keeps Falling: What's the Problem? Beware the Fed, Says Ilya Spivak

Market / Macro Context (What Changed, What Didn’t)

• Markets paused after an “exuberant” move tied to signs of a US–Iran peace deal, with news flow expected to land by the end of this week.
• Despite positive geopolitical developments, price action suggests momentum/sentiment strength faded:
  • S&P 500: bounced to a level near the prior swing high from mid-June, then showed negative divergence (RSI-style momentum referenced).
  • The repeated pattern: rally → loss of momentum near the same resistance zone, with volume divergence and growing negative divergence (sentiment).

Energy + Inflation Transmission

• Crude oil continued falling, but equities sentiment did not fully “re-risk.”

• Other markets reflecting the inflation/rates linkage:

  • Gold sold off earlier alongside bonds, framed as: oil spike → inflation expectations → higher rates → gold under pressure

  • Bonds / yields are the key “tell”:

    • 10-year yields surged (referencing ZN = 10-year Treasury futures).
    • Bond market momentum remains in a downtrend, implying the market still prices structurally higher rates, even after oil/geopolitical risk eased near-term.

FX Signal (Dollar)

• US Dollar (DXY implied):
  • pulled back “about halfway” during relief
  • then reasserted an up move
• Dollar strength “dating back to April” reinforces the “higher-for-longer rates” narrative.

Geopolitical Relief but “Inflationary Scarring” Remains

• Even with potential reopening progress (e.g., reopening the Strait of Hormuz and Qatar messaging about restoring ~80% of natural gas capacity “within just two months”):
  • the argument is that markets believe the oil shock created persistent inflation and monetary policy consequences.

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Fed / Rates Framework and Probabilities (Key Numbers)

Central Bank Developments Mentioned

• RBA: held rates “as expected” after three rate hikes.
• Bank of Japan (BOJ): raised rates to 1% (highest since 1995).
• Fed: major re-pricing versus earlier in the year:
  • earlier-year expectations: 50 bp cuts
  • now: “flirtation with rate hikes”

Market Pricing (Explicit)

• Markets discounted about 13 bp out of a 25 bp hike (suggesting better-than-even odds of a hike by year-end).
• Using CME data, the speaker cites an ~80% aggregate probability of at least one rate hike by the December meeting.

Near-Term Catalyst

• Fed meeting with new chair Kevin Walsh: “in less than 24 hours”
  • includes policy statement and press conference
  • no new SEP expected this time
  • the speaker notes the new chair is “skeptical” of the SEP exercise

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Inflation Details: “Pro-Cyclical” vs “Energy Shock” Framing

• CPI re-acceleration is not described as purely energy-driven:
  • the energy shock is present
  • but there’s also a meaningful pickup in core services inflation and core inflation
  • core goods inflation is said to have declined
• Services and costs are framed as stickier, with spillovers already visible in:
  • warehousing costs
  • freight costs
  • referenced in CPI and wholesale inflation (PPI) over “recent months”
• The speaker distinguishes:
  • Cost-push inflation (energy shock)
  • vs demand-pull / pro-cyclical inflation (activity accelerating alongside inflation)

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Growth Mix / Overheating Risk (GDP Numbers)

• Growth mix (as described):
  • pre-government shutdown growth recovered only about half
  • Q2–Q3: averaged about 4%
  • Q4 (government shutdown impact): growth down to 0.5%
  • Q1: recovered about halfway back (slightly less on “second revision”)
• Component emphasis:
  • Consumer spending (~68% of GDP): lagged growth contribution
  • Investment (~14% of GDP): contribution bigger than consumption
  • Investment growth cited: business investment surging at 10.4% (annualized) in Q1
  • Driver noted: data center buildout
• Warning: there’s “overheating under the surface” even if headline growth looks moderate, implying inflation risk.

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Explicit Positioning / Strategy Recommendations (Risk-Taking / Hedging)

FX

• Long US dollar:
  • “short the Aussie, the pound and the euro outright”
  • via micro futures (tickers not specified)

Equities Risk Posture

• Risk-off in major indexes:
  • short call verticals in Qs/QQQ and SPY
    • “short these call verticals in the cues” (NASDAQ via QQQ)
    • “verticals in SPY” (S&P 500 exposure)
• Rationale: sentiment plus rates/inflation uncertainty.

Rates / Duration

• “Still holding the long side of rates” → “so the short side of bonds”
• Implementation described:
  • puts “about the middle of the curve” in intermediate Treasuries (exact ticker not fully specified; “T” referenced)
  • TLT (long-end Treasury ETF): “still have the call vertical there”
• Overall presentation: bearish duration / upside rates risk (based on the structuring described).

Inflation Hedge Tied to Energy/Gas

• Looking for more on the natural gas side:
  • holds a call vertical (instrument/ticker not specified)

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Disclosures / Disclaimers

• No explicit “not financial advice” disclaimer appears in the provided excerpt.

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Tickers / Instruments Mentioned

• S&P 500
• Crude oil (no specific contract ticker)
• Gold (no specific ticker)
• Bonds / yields
• ZN (10-year Treasury futures)
• QQQ (NASDAQ exposure via “the cues”)
• SPY
• TLT
• Micro futures on AUD, GBP, EUR (specific tickers not provided)
• Natural gas (no specific ticker mentioned)
• CME (probability source)
• Institutions: RBA, BOJ, Fed

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Methodology / Framework Elements (As Described)

• Price-action + momentum divergence framework:
  • identify key swing high/low levels
  • look for negative divergence in momentum (RSI-style oscillator)
  • confirm with volume divergence
  • assess whether a rally can extend using sentiment behavior
• Macro transmission logic:
  • oil shock → inflation expectations → higher yields → pressure on gold / affects asset classes
  • confirm via bond yields and USD direction
• Fed expectation framing:
  • use CME-implied probabilities to estimate odds of rate hikes
• Inflation decomposition approach:
  • separate energy cost-push from core/services stickiness and pro-cyclical demand pull

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Presenter(s) / Source(s) Mentioned

• Ilya Spivak (ISPAC) — Head of Global Macro, Tasty Live
• Chris Veio — co-host of the referenced “Macromoney” show
• Kevin Walsh — new Fed chair
• Institutions referenced: RBA, Bank of Japan, Fed