Jerome Powell delivered the much anticipated FOMC rate decision on Wednesday. When the statement came out at 2:00 PM the markets rallied to a new daily high. However, when the Chairman spoke the markets sold off to a new low for the day. And, the dominos are still falling.
Summary
Treasury yields fell sharply after the Fed rate announcement. The bond market still signals expectations of a pause in interest rate hikes, despite Fed Chair Powell’s comments.
Jerome Powell
Jerome Powell was quoted in his semi-annual testimony before the Senate Banking Committee as saying.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,”
Yesterday the FED Chairman sounded a bit more dovish, yet markets are still range bound, as we can see in the chart below.
What are we doing now?
Keep in mind the markets are not trending like 2020-2021, so we are more cautious.
The SPX is range bound, so this changes our investment strategy.
For now, we’ll add to bond exposure. We’ll stay with gold and silver long positions, and we’ll add to SPXU, QID, SQQQ, TZA, hedges if the markets look weak in the short-term.
David Rosenberg, the ex-Merrill Lynch economist who founded Rosenberg Research, sums it up pretty well.
“Peak growth. Peak inflation. Peak credit cycle. Peak rates. Buy bonds!”
Hedges – Small Cap Bear 3x TZA
Direxion Small Cap Bear 3x ETF (TZA) is another position where we are hedging our exposure to The Russell 2000 Small Cap Index (IWM) and its small cap banks.
Deutsch Bank (DB), Credit Suisse (CS), Pacific West (PACW) and First Republic (FRC) banks were under pressure this week.
If more banks follow, TZA will hedge the potential fallout.
Hedges – Gold and Silver
Hedges – iShares TIPS Bond ETF
We also like the iShares TIPS Bond ETF (TIP) for a hedge with respect to inflation. It’s clearing the 200d moving average.
Join us today in the trading room for our LIVE broadcast during market hours, as we navigate the current environment. Watch, listen, and trade from 9:20 AM to 4:15 PM Monday through Friday.
Happy Trading,
Vinny
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