The Fed vs. Stocks, redux⦠[TradeSmith Daily]( Rate expectations are getting back in whack | Stocks down, yields up | A Hulk-like consumer despite sticky inflation | An income strategy for choppy markets… --------------------------------------------------------------- By Michael Salvatore, Editor, TradeSmith Daily The old saying goes: âdonât count your chickens before they hatch.â In other words, donât base your decisions today on hopes for the future. Weâve all heard this advice… even if weâre not always the best at heeding it. And that feature of the human condition might explain all the optimistic chicken-counting after the Fedâs last press conference on Dec. 13. With the prospect of the first rate cuts since 2020 on the table, greed got the better of investors. Expectations got âout of whack.â Stocks soared into year-end. Even we, here in TradeSmith Daily, made a point to look at [how stocks perform post rate-cuts]( and suggested some [sectors for your shopping list]( with stars in our eyes. Now, halfway through the first month of 2024, expectations are getting back âin whackâ… and stocks are sputtering. This isnât a âgut feelâ thing. We can see it in the data. So today, weâll go over tradersâ Fed rate-cut expectations… the last weekâs price action… check in on the Fedâs own estimations of the first rate cuts… and share our thoughts on what to do if this dip keeps on dipping. RECOMMENDED LINK [CRITICAL January 31st Warning](
Jason Bodner is going public today with [an urgent new warning](. He believes the most popular investment of 2023 is set to pop... And it could all start just days from now. This has NOTHING to do with A.I. stocks... It has NOTHING to do with crypto currency... And it has NOTHING to do with high-flying tech stocks. Instead, this corner of the market you likely have cash parked in has swelled to nearly $6 trillion.
[Click here to watch this warning now]( ❖ Out-of-whack rate-cut hopes are shrinking before our eyes…
The CME Groupâs FedWatch tool is an incredibly informative look at investor expectations. With it, we can see where traders believe the Fedâs key rate will be, based on futures-pricing data. As it turns out, the last month has brought on a serious recounting of rate-cut eggs. On Dec. 15, the FedWatch tool suggested a 10% chance of a rate cut coming on Jan. 31, the next Fed meeting on the docket. Today, that probability stands at 2.6%. Further time frames are even more informative. Just one week ago — notably the day before the most recent Consumer Price Index report — traders were pricing in a 65% chance of a 0.25% rate cut by March 28. Now, thatâs shrunk to 57.6%. Traders may want rate cuts sooner. But a hotter-than-expected inflation report and a stronger-than-expected consumer spending report is tempering expectations — not to mention taking the wind out of stock bullsâ sails. ❖ On Wednesday, stocks posted their worst day in the last month…
The S&P 500 fell almost 1%, while the tech-heavy Nasdaq fell almost 1.5% at the lows. Treasury yields also jumped higher, with the 10-year yield jumping back above 4%. To borrow another tried-and-true phrase, weâre not out of the woods yet. While stocks struggle through January, Treasuries across the duration spectrum are proving to be stubborn competition. Thatâll remain the case for as long as the Fedâs key rate remains high. And that could be the case for quite some time. Federal Reserve Bank of Atlanta President Raphael Bostic said yesterday that he doesnât expect the Fed to cut rates until the third quarter, or until inflation is convincingly back at the Fedâs 2% target. The hesitation on the Fedâs part is a repeat of the 1970s, when inflation came in waves and premature interest rate cuts failed to put a lid on it. It wasnât until Paul Volckerâs Fed raised the federal funds rate to 20% in 1980 that inflation finally got squashed. Once again, investors are overestimating how accommodative the Fed is going to be with interest rates. Thereâs a strong possibility that Bostic is right and we wonât see any rate cuts until summer. But hereâs the thing, though… this tracks with a lot of what weâve been sharing here in TradeSmith Daily. History shows that election-year volatility tends to strike in the first quarter to first half, with a huge recovery in the back half of the year. If the first rate cuts are going to light a fire under stocks, and weâre not likely to see those first cuts for some months… then that lends more ammo to the argument of a weaker few months ahead. RECOMMENDED LINK [Bidenâs Replacement Named?](
Did democrats just name Bidenâs replacement for 2024? Louis Navellier predicts [this âshadow candidateâ could upend the entire election](. ❖ TradeSmith options pro Mike Burnick laid out his take for subscribers earlier this week…
Hereâs Mike with his thoughts on the dance between markets and the Fed…
[The] CPI has fallen steadily over the past 12 months now. Itâs hovering at just 3.4%, down from a peak above 9%. And yet the benchmark Fed policy interest rate remains at the highest level in over a decade, at 5.25% to 5.5%. That means monetary policy is clearly restrictive… and the longer it stays this way, the more vulnerable our economy is to a slowdown. Somethingâs got to give. Investors are betting itâll be the Fed that gives in and starts lowering rates in the first half of this year. But if the Fed hesitates to do so, the stock market rally could be lost. Iâd add on that the Atlanta Fed expects GDP for the fourth quarter of 2023 to come in at 2.4% — a drop from the near-5% shocker from third quarter, but still a steady number that could discourage a sooner rate cut. Mike watches the markets and economy closely, as any good trader does. But Iâll note that his trading strategy is pretty well insulated from whatâs happening at the 1,000-foot view. Mikeâs claim to TradeSmith fame is generating consistent income by selling put options. That knowledge makes him the perfect âcopilotâ for readers using TradeSmithâs advanced put-selling algorithm, which shares great income plays with minimal risk every day. (Iâll share a more in-depth look on this strategy in an essay coming your way this weekend.) Over the last 10 months, the Constant Cash Flow algorithm has helped readers claim instant, upfront cash injections to their portfolios with outstanding success. Since those trades started going out on March 15, 2023, the Constant Cash Flow strategy has generated a 99% win rate across hundreds of trades… generating over $10,000 in income. If it sounds impressive, thatâs because it is. Iâve seen a lot of option-selling strategies out there in the wild, but never one that can boast such an ironclad track record and consistent returns. (Thatâs what happens when you have TradeSmithâs world-class analytics and datasets backing you up.) [Mike might call this strategy âboringâ]( but to me, thereâs nothing boring about making money nearly every day the market is open. Especially in a volatile market, having a consistent moneymaking tool is a safe haven. And the best thing? The more volatile the market, the more cash you stand to make from using this strategy. [Go right here to see how.]( To your health and wealth, [Michael Salvatore]Michael Salvatore
Editor, TradeSmith Daily P.S. In case you forgot… I always love to hear from TradeSmith Daily readers, the most sophisticated and friendly group of folks Iâve ever had the pleasure of writing to. Really, your feedback is what helps make TradeSmith Daily better with every issue we send your way. If you like what youâve been reading, or have an idea youâd like us to dig into, remember you can send us your thoughts anytime at feedback@TradeSmithDaily.com While Iâm at it, hereâs one question Iâd like you to answer for me: Do you think weâll see a rate cut before July? And whether you think we will or not, do you think stock prices will be higher or lower by then? Once again, that email is feedback@TradeSmithDaily.com. I look forward to hearing from you. Get Instant Access
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