December rate hike

Profit from the December Rate Hike Now with 3 Easy Trades

According to the CME FedWatch Tool, there's a 91.7% chance of a December rate hike, but that could prove to be a major profit opportunity for investors...

And Money Morning Chief Investment Strategist Keith Fitz-Gerald wants to show you how to make money from it with three profit plays built around the potential rate hike.

Since slashing rates to a historic low of 0.25% in 2008, the U.S. Federal Reserve has raised rates four times. Now, another rate hike would send rates from the 1%-1.25% range to the 1.25%-1.50% range.

That's a bullish indicator for the financial industry.

Here's why banks are particularly poised to grow if there's a rate hike at the December FOMC meeting from Dec. 12 to 13, plus Keith's three profit plays for the sector...

Why Banks Are the Best Way to Make Money from a December Rate Hike

December rate hikeBanks are among the best-performing companies when interest rates rise. Since banks give out loans, higher interest rates make the banks more money.

For instance, Wells Fargo & Co.'s (NYSE: WFC) annual net income grew 10.4%, to $8.5 billion, from 2005 to 2006, when rates were in the 4.25%-5% range. Compare that to 2015, when rates were near 1%. That year, Wells Fargo saw net income actually decline 0.9%, to $22.9 billion from $23.1 billion the year before.

According to Keith, bank stocks and financial exchange-traded funds (ETFs) are great ways to "trade the Fed," and research over the last 27 years supports that. Data startup Kensho reports that investments in the financial sector have gained an average of 10.7% in the two months leading up to every single rate hike since 1990.

But December rate hikes can be particularly profitable for banks since a year-end rate hike means the Fed believes the economy is set for more growth. In other words, December rate hikes aren't just rate hikes, but rather forecasts for a really good economic year ahead.

"My research shows that year-end rate hikes are typically part of a much broader financial setup," Keith said. "That includes everything from window dressing to performance-enhancing trades that portfolio managers use to position hundreds of millions (or even billions) of dollars for the following calendar year."

Urgent: An $80 billion cover-up? Feds use obscure loophole to threaten retirees... Read more...

With odds of a December rate hike at 91.7%, Keith wants to show you three trades you can make right now to profit from the strengthening economy and higher rates.

For these trades, Keith advises only risking the maximum amount of money you can afford to lose. He also recommends putting a trailing stop - which automatically sells the stock if it falls a certain percentage - on each trade. These are great for minimizing losses and maximizing returns.

"Over the years, I've suggested 25% below your purchase price as a good place to begin," Keith said, "but there's nothing wrong with running a much tighter 5% trailing stop if you don't have that kind of risk appetite."

With that strategy in mind, here are Keith's three recommended trades to make before the possible rate hike decision on Dec. 13...

3 "Fed Trades" to Make Ahead of the Likely December Rate Hike

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Fed Trade No. 3: Western Alliance Bancorporation (NYSE: WAL)

WAL is a best stock play ahead of the December FOMC meeting.

Western Alliance Bancorporation owns Western Alliance Bank, which has six banking divisions in Arizona, Nevada, and California. These primarily include regional branches like Bank of Nevada and Alliance Bank of Arizona. The company boasts over 40 locations across all six separate divisions.

Keith particularly likes Western Alliance for its return on common equity (ROCE). This is a percentage that measures the amount of profit a company makes per every dollar that people invest in its stock. The higher a firm's ROCE, the more a company's profitability benefits investors.

Over the last four quarters, WAL's ROCE is 14.92%. That's far above the average ROCE of the U.S. banking industry in the first half of 2017, which was 9.75%.

Shares of WAL stock are up 7.6% in 2017. They currently trade at $52.47.

Fed Trade No. 2: iShares U.S. Financials ETF (NYSE Arca: IYF)

If you'd rather spread your money across the whole banking sector, Keith recommends the iShares U.S. Financial ETF.

This fund tracks 284 American banks and financial services companies. Its top five holdings include Bank of America, Citigroup Inc. (NYSE: C), and Berkshire Hathaway Inc. (NYSE: BRK.B).

These bigger companies are largely responsible for the fund's overall returns. For instance, BRK.B makes up 7.1% of the total fund and is up 15.3% this year. This has helped lift IYF 12.5% higher to $114.10 over the same period.

But Keith says the fund's smaller banks could limit those returns due to these banks' low ROCE percentages. That's why it's important to have a trailing stop in place like we mentioned earlier.

"Just understand that some of the upside will be limited by weaker banks with lower return on shareholder equity that are included in the fund," Keith explained.

Fed Trade No. 1: Options on JPMorgan Chase & Co. (NYSE: JPM)

If you're a more seasoned and aggressive trader, consider call options or options-related spreads on JPMorgan Chase stock. Specifically look into the JPM Jan. 19, 2018, $97.50 call (JPM180119C00097500).

Call options gives you the right - but not the obligation - to buy a stock at a predetermined fixed price. You buy this type of option when you're confident the stock price will rise. Meanwhile, an options spread can involve buying and selling options simultaneously as a hedging tactic.

JPMorgan is the largest U.S. investment bank in terms of revenue. Data analytics company Coalition said JPMorgan led Wall Street last year with revenue of $25.2 billion across its fixed income, equities, and banking division. Goldman Sachs Group Inc. (NYSE: GS) and Citigroup were tied for second in 2016.

With that dominance, Keith says JPMorgan will grow its loan business aggressively as rates continue to rise, and that could translate to a higher share price for its stock.

Seventeen Triple-Digit Winners This Year... and Counting

Keith Fitz-Gerald's Money Map Report subscribers who have followed along with his recommendations are now sitting on 17 triple-digit winners this year - including a 201.68% return and 132.35% gain that closed out in the same week.

Each week, Keith shows everyday Americans how to tap into the world's biggest high-profit trends, ahead of the crowd.

There's nothing complicated or overly risky - and no guesswork involved.

Right now, he's looking at another double-your-money opportunity, and there's still time to get in on it. Find out how to subscribe and access all of Keith's recommendations by clicking here now.

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