Don’t Fight the Fed

The Fed will always be the biggest trader in the room. [Jeff Clark's Market Minute]( Don’t Fight the Fed By Eric Shamilov, analyst, Market Minute Don’t fight the Fed… If there’s one Wall Street cliché to adhere to, it’s this one. When the Fed is adjusting its monetary policy, you don’t want to be caught on the wrong side. The Fed will always be the biggest trader in the room… Like it was in early 2019 or during the 2020 pandemic. If the Fed is accommodative or on its way toward being so, markets will rise. High valuations won’t matter. Stocks will simply rise because there’s too much money in the system that needs to find a home. Recommended Link [“Diversification Is For Dummies”]( [image]( Market Wizard Larry Benedict is one of the most successful investors you’ll ever meet… But he doesn’t invest the traditional way. His approach has nothing to do with “buy and hold.” And it flies in the face of everything a financial planner would ever tell you. [He reveals everything in this interview…]( -- And if the Fed tightens policy like it’s doing this year, markets can turn ugly. Valuations become important and investors get picky. But right now, the market is ignoring what the Fed is shouting… It will get more aggressive, not less. That’s because Friday’s blow-out jobs report showed the economy added 528,000 new jobs when analysts were expecting 250,000. And a hot jobs market runs contrary to the Fed’s current mission. The Fed is looking for the unemployment rate to rise so that demand drops, which in turn will help fight inflation. But this report proved the current pace of interest rate hikes is ineffective. In fact, six minutes after the release, ex-Fed governor Randall Kroszner confirmed this notion by saying… “A 75 basis-point rate hike is certainly on the table for September’s Federal Open Market Committee (FOMC).” And it’s why the relief rally I mentioned [on June 28]( will have to soon come to an end. So, how did the market latch on to this new narrative that the Fed will back off on rate hikes? It’s the same thing that plagues the market repeatedly… false narrative based on circumstantial evidence. You see, the market needs a story to match price action. Some quote or facial expression from Jerome Powell during his press conference on July 27 probably created a buzz and gave headline writers an easy choice to make. Headlines of a Fed that is about to back off on interest rate policy matched nicely with headlines of a Nasdaq up 20% from its lows on June 16. Right now, the market is suffering from one big collective bout of cognitive dissonance, driven by the money-losing emotion called FOMO (fear of missing out). And this is what justified investors to chase prices higher. But ultimately, investors will be reminded that this is no longer 2021. Free Trading Resources Have you checked out Jeff's free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career – at zero cost to you. Just [click here]( to check it out. What’s interesting is how this narrative formed when the old one was proven wrong. It started before earnings season on July 14. The market was at 3750, down 21% on the year. It looked reasonably priced with a [price-to-earnings (P/E) ratio]( at around 16 and at its long-term average. But then­ (as is the case now), the narrative had to match prices. So, the idea of a “valuation mirage” took hold. [On July 26]( I identified this storyline and mentioned that if earnings would surprise to the upside, the market would rally hard. And that’s exactly what happened. Earnings beat, the narrative of a “valuation mirage” proved wrong, and the market rallied. But prices went too far, too fast. [ONE Stock Made Massive Gains in 2008, It’s Back…]( So, the “valuation mirage” narrative transformed into the “Fed Pivot” narrative… a made-up story perpetuated by headlines that the Fed would back off on raising rates. But just like the last one, this narrative will be proven wrong. The Fed will have to get more aggressive because the only tool they have to fight inflation right now… is to hike rates more. And I can’t imagine a market that just got out of a bubble six months ago, would come right back into one. Regards, Eric Shamilov Analyst, Market Minute Reader Mailbag When do you think we’ll see a pause in rate hikes? Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com. In Case You Missed It… [America’s FINAL Transformation]( Nomi Prins predicted the Enron scandal… The 2008 crisis… The 2020 market crash… And inflation back in 2021 before what we’re seeing now… But now, Nomi (a former Goldman Sachs managing director) is predicting something much bigger… A new financial move creeping under the roots of America that explains why you’ve been left behind in a shattered economy… While the rich continue to get richer. The world’s biggest groups are already a part of it: - President Biden has issued a new executive order on this transformation… - Alongside MIT, 77 global Governments, The Gates Foundation, UNICEF, and The Clinton Development Initiative… - Major corporations like: Citigroup, Ford, MasterCard, Visa, Coca-Cola… [Click here to see what’s NEXT for America…]( [image]( [Jeff Clark's Market Minute]( Jeff Clark Trader 55 NE 5th Avenue, Delray Beach, FL 33483 [www.jeffclarktrader.com]( To ensure our emails continue reaching your inbox, please [add our email address]( to your address book. This editorial email containing advertisements was sent to {EMAIL} because you subscribed to this service. To stop receiving these emails, click [here](. Jeff Clark Trader welcomes your feedback and questions. But please note: The law prohibits us from giving personalized advice. 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