Is The Fed-Driven Bear Finally Over?
The Fed is on the verge of making a major move.
It’s not the rate hike Wednesday though.
That’s pretty well decided.
The real big news is what the Fed will do at its next meeting in December.
I wish I could tell you there is a way to know what the Fed will Signal in December.
On one hand, 76% of Americans believed the country is currently in one, according to a recent survey from Cinch Home Services.
On the other hand, the Fed Deemed inflation “transitory” when anyone who bought eggs, milk, or broccoli knew that wasn’t the case.
The Fed is unpredictable.
But we are within hours of having some clarity.
And from there a different type of market will be here.
Here’s a great way to get ready for either outcome.
Fed Turning Point?
The current macro environment is based on the Fed’s next next move - the December rate hike.
No one has any idea what they are going to signal though.
Take a look at the probabilities from FedWatch for the December rate move:
The data here shows the market has no confidence in predicting the Fed’s next move.
After a 0.75% rate hike at the meeting this week, no one is betting heavily on the next move.
There’s a 46% probability of a 0.5% rate hike.
And there’s a 44% probability of a 0.75% rate hike.
There’s even a slim probability of a 0.25% hike.
The best move is to prepare for all possible outcomes.
And there’s a way to do that.
Stairs And Elevators
With this much variability, the Fed trade is all risk and little reward.
Historically, stocks go up stairs and down elevators.
A dovish Fed could feed the current rally.
But let’s be real, stocks may continue to go up slowly.
So there will be time to jump in after the Fed move even if stocks jump 1% on the announcement.
However, if the Fed signals another big 0.75% rate hike, watch out.
There won’t be many places to hide from what follows.
Stocks and bonds could face another big down leg.
It’d be easy to say jump in now or run for the cash hills.
But the way it looks now before the announcement, the best strategy is to wait and pounce if the rally continues.
That way you will get most of the upside without all the sizable risks that come with betting the Fed will ease up on the rate hikes.
