Market Reaction to Fed Announcement
The big lingering question regarding the Fed meeting after the decision is how to properly position portfolios. If you thought it was tough to get an edge on the rate decision, the markets’ reaction is even more so, which is why I would absolutely not advocate making wholesale changes ahead of the announcement. It’s one thing to flip a coin on the decision, but it’s a whole other thing to get the markets’ reaction correct as well.
The four possible scenarios are below.
Rate hike and rally
Rate hike and decline
No hike and rally
No hike and decline
Before pondering that, I saw a few Tweets that suggested Yellen could raise rates with dovish comments or leave rates alone and offer hawkish comments. And if the Fed doesn’t raise rates now, we will be having this same discussion before the December meeting. It’s enough to make you head spin!
Regarding stock market reaction, the very short-term sentiment indicators still have sufficient enough pessimism to support further upside. If I had to lean, that’s the direction the odds favor right now, but I certainly would not bet the farm on it. Good thing for me since I don’t own a farm!
The Fed trend also has a 70% upward bias for the day, but some of that fuel was likely used this week.
Should stocks spike higher on the news and follow through, I will view that as a selling opportunity rather than a momentum buying opportunity, which should be the minority opinion.
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