Market spent 2 years asking when does the Fed cut. Wednesday it's 85% to hike and I think everyone's watching the wrong thing.

For two straight years the only question in retail land has been when the cuts start. As of Friday, CME FedWatch has 85% odds of a 25bp hike at the Sept 16 meeting, up from 56% two weeks ago. The whole repricing traces to Warsh's Jackson Hole speech where he leaned hard into the inflation mandate. Macro backing him, PCE 3.7% yoy, PPI 5.4%, oil over $107, 10 year pushing 5%, highest in about three years.

I believe the hike is priced, if you're planning to trade Wednesday's decision, you're late. The bond market already did that move over the last two weeks. The detail in the meeting that matters is the dot plot, and that's where the real risk lives.

BofA's survey has semiconductors as the most crowded trade on record, and cash near all time lows. So you've got peak concentration in the most rate sensitive names in the market, with almost no dry powder to absorb a rotation. It's not a crash thesis but a fragility one and the AI capex story runs on cheap financing, so a 10 year near 5% quietly lifts the hurdle rate on the whole buildout that's been carrying this market.

Most or everyone can probably see this, so maybe it's fully in the price and the real surprise is a dovish hike, 25bps with dots signalling a pause, which squeezes all the shorts and rips semis higher. Given how consensus the hawkish read has gotten, that might honestly be the less positioned for outcome now.

Still long on my book and have hedges in place, the dot plot will be the most important tail. If the war continues on, inflation persists, yields and oil prices continue rise, equities will struggle to perform in the near future.