Investors are making a coo coo-bananas bet on the Fed's interest rate plans for next year... based on nothing but their wish for change.
Listen up and listen good! Don't follow these people down this rabbit hole. It'll chew you up and spit you out.
Here's why...
For the past year, the market has settled into a ritual. Every couple of months, investors would slide to the edge of their chairs and wait with bated breath for Jerome Powell to hit them with another rate hike.
Once the slap was delivered, everyone would cringe and recoil, babble on about recession a whole lot, and then play the "bet the Fed's next move" game.
When not on Fed watch, investors would hinge their next move on the latest inflation reading. Even a slightly better-than-expected number would make them giddy.
Really, inflation has been thorns in the economy since year two of the pandemic. They've pricked everyone to some degree. To others, they've set in motion an infection that has felled some big names (with others struggling to survive).
That's why, over the course of a single year, we've had the privilege of watching the Fed's fund rate soar all the way from 0.25% to 5%. That's a 20-times multiplier. The Fed has been trying to mainline an antibiotic into the economy.
Unfortunately, it has made the situation worse for those companies and individuals doped up on debt.
The fallout that has started, with the likes of Silicon Valley Bank and company, has brought the Fed up short.
Shortly after news of the bank's collapse, Powell announced that the Fed has likely gone far enough in its fight against inflation. He indicated that it will likely stop hiking rates for this cycle.
So, Cleveland Federal Reserve Bank President, Loretta Mester's, recent comment seems out of touch with reality. She said, "We're hoping we don't tighten until something breaks."
With all due respect, Ms. Mester, some things have already broken. And your boss has already said the hikes are likely paused for now.
Unfortunately, investors have gone coocoo bananas and have grabbed onto the wrong end of Powell's stick.
"Letting up on rate hikes" doesn't mean that the economy is going to be taken out of the vice the Fed has been squeezing it in. Strictly speaking, it just means they're going to leave the rate where it is and not tighten it any further.
This doesn't even remotely imply that things are going back to the way they were in pre-pandemic or early-pandemic times.
Think about it this way: If a team is losing a basketball game, and the clock gets stopped, it doesn't simply get points added to the scoreboard. When the game restarts, they're still losing.
Really, what the fed is doing is just saying that things may stay right where they are.
I need to tell you this because of what the markets have been doing since the Fed said it would consider pausing.
Since the day SVB collapsed, on March 10th, the S&P 500 is actually up, and by a noteworthy margin of 5%.
That's a problem. People may not just be happy to see the rate hikes possibly end, but they may actually be expecting a rate cut in late 2023. And they may be pricing that expectation into the market.
That's a huge problem!
Why?
Because there is no rate cut coming in 2023.
The Fed never promised that. It never even hinted at it. There is no realistic chance of them doing it after being so hawkish to get inflation under control, especially since, as of right now, inflation is not under control yet.
Investors who have been buying on the assumption of lower rates to come will be disappointed. When that happens, the loss of confidence could send the market back down.
Don't be one of those investors.
Instead, get ready to trade the market turn that's coming.
Using my big money flow insights, I'll tell you when it's starting to happen so you can be ahead of the crowd.
So that you don't miss the signal, make sure you're watching Profit Takeover whenever I'm live, and reading these emails.
We'll talk again soon.
Mark Sebastian
The post The Coo Coo-Bananas Fed Bet Investors Are Making appeared first on The Profit Takeover.
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