Hello traders
I hope you had a good week!
The past few days have been chaotic for investors, with the VIX “fear gauge” surging towards a level of 40 on Monday. The market had been hoping for some respite as bond yields showed signs of settling following their run up since new year. Alas, there is no rest for the wicked and investors grew increasingly anxious ahead of the Wednesday’s much anticipated FOMC meeting.
Fed Chair Jerome Powell communicated a defiantly hawkish stance against inflation, even to the expense of economic growth and asset prices which he sees as “elevated”. The market interpreted this as “the Fed put” being removed, thus opening the trap door to greater downside risk in the coming months. Equities certainly did not take to the news kindly, which sent the S&P 500 back towards the week’s low.
The message coming from the central bank is clear – rates are going up sooner and by more than originally expected, without concern for collateral damage to businesses and investors. However, it is interesting to note that the yield on the 10-year treasury has remained within a range since the meeting. Perhaps the bond market sees the Fed hiking towards a recession of their own creation, which other gauges such as the yield curve tend to agree with.
My own view is that the inflation is already beginning to normalise and will naturally diminish over the next few months. But with the aggression from the Fed, this will almost certainly impede economic growth and raise the argument for rate cuts and perhaps more stimulus later in the year. After all, it is an election year, and you don’t tend to win votes with a contractionary policy.
I discussed this in more detail in this week’s Trading Club video, which Trading Club members have immediate access to. We have also just updated our Monthly Checklist Report providing a bias for our investing throughout February.
Here’s a quick preview of one of the Checklists that has caught my eye this month. Whilst I cannot reveal the scores to you here just yet, I look forward to doing so in the next couple of weeks.
If you would like to learn more about our methods, and join me for more analysis in real-time, head to milliondollartraders.com and check out MDT course and Trading Club pages where you can preview everything that we cover.
Have a great weekend,
James
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