Never Get Blindsided By A Fed-Driven Sell Off Again
A pattern has emerged and it cost you a fortune.
The Federal Reserve’s rate hikes are slamming stocks.
This summer’s sell-off has been driven almost entirely by the Fed.
The Dow was over 33,000 leading up to the Fed’s June meeting.
It announced a big 0.75% rate increase and a week later the Dow hit 30,000.
It was a Fed-driven 9% decline
By August The Dow climbed back to more than 34,000.
A full recovery from the Fed.
However, the Fed was meeting again and would put a stop to the rally.
The Fed announced another 0.75% rate increase and the Dow fell to 31,000.
It was another Fed-driven 9% decline
The Fed met again this week and the results were the same.
The Fed increased rates another 0.75% and sent stocks tumbling again.
It’s an ugly and costly pattern.
But you don’t have to get caught out on it ever again.
How The Pros Predict The Fed's Next Move
The Fed has many stated goals.
It’s officially charged with limiting inflation and maintaining full employment.
Long time investors know it also has an additional goal though.
Do not spook the markets.
The Fed doesn’t want to surprise the markets, create major volatility, and erode any credibility it may still possess.
That’s why it usually signals its next move well in advance and professional investors get prepared for it.
And you can be prepared too by checking out this one tool.
It’s called the FedWatch Tool
and it’s the best predictor of the Fed’s next moves.
This tool is based on the interest rate futures markets.
Interest rate futures are contracts which allow institutional investors to bet on and hedge against future interest rate moves.
They trade on the CME Group’s exchange (formerly the Chicago Mercantile Exchange).
It’s one of the largest and most liquid markets in the world.
It’s also where you can see what the market is expecting the Fed to do next in the clearest terms.
Here’s the most current example.
The Fed is scheduled to meet again and announce another short-term interest rate move on November 2nd.
The Fedwatch Tool is telling us the next interest rate hike is going to be another big one too.
If you go to the FedWatch web site
you’ll see the professional investors are gearing up for two possible Fed moves.
The market gives a 36% probability of a 0.50% hike
And it is currently predicting a 64% probability of another 0.75% point increase
So basically, the Fed is going to keep going down the same path.
Nothing has changed.
Now, we’re not debating here whether the policy choices are the right one.
A stagflationary recession is the most likely outcome of the Fed raising rates to slow down the economy to reduce inflation while the federal government ramps up spending and intentionally handicaps energy production.
The point here is that a costly pattern has emerged which is the Fed hikes rates, markets act surprised and sell off.
It’s a costly pattern if you’re not prepared for it.
But it doesn't have to cost you.
The Fed is highly predictable and by using assets like Fedwatch Tool, you don’t have to pay the high price for it.