Thursday, May 19, 2016

June Rate Hike?

The Fed flip flopping on rate hikes is killing whatever little bit of credibility they have left.  It is not some wild fluke that the futures market is pricing in only about a 30% chance of a June rate hike and less than 80% chance of a rate hike by December.  The Fed presidents can yap all they want, but unless they deliver on their promise of 2 rate hikes this year, they have no credibility.

Every time the stock market has a correction, suddenly the rate hikes get delayed, based on every excuse except a stock market correction, even though the real reason is the S&P going down.  Last September, they were scheduled to hike rates and many were expecting it before you had a monster drop in late August, which changed the whole story.  Finally, they reluctantly hiked rates in December because they were promising to the whole time and the stock market had stabilized above 2000 at that point.

With the market not completely pricing in a June rate hike, don't expect the Fed to surprise the market.  You will either have to have Janet Yellen telegraphing a rate hike beforehand or you will not get that June rate hike.  If I had to place my bets, I would bet that Yellen punts again.

With a Yellen punt, the S&P should embrace that news and rally back higher, perhaps for a last visit towards 2100 after the FOMC meeting in June.  Right now, the pessimism is a bit too extreme and we should go sideways and rally a bit to work off that bearishness.  Anyway, big picture, almost everything points to weakness so keep that in mind when taking swing trade positions.

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