Waiting for the Fed

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Key learning points

  • Fed expects to raise interest rates
  • Putin wages war
  • Jobs continue

After a strong Monday, markets took it on the chin on Tuesday in what I’ll call pretty typical pre-Fed announcement trading. We often see whipsaw moves en route to a Fed meeting and this week was just that. Now it’s just a matter of waiting a few hours to hear from Jerome Powell.

Heading into Wednesday, markets are pricing in an 84% chance of a three-quarter point rate hike. With that level of confidence, I think the markets will be most interested in more details about the Fed’s future outlook. Just as we discussed with earnings season, we have a pretty good idea of ​​what to expect today, but the forward-looking statements will likely dictate the market response. Therefore, while we may see a lot of choppy trading when the Fed announces 1:00 PM CDT, I wouldn’t be surprised if the market digests the Fed’s full statement.

Overnight, Russian President Vladimir Putin announced a partial mobilization, continuing his war effort against Ukraine. Russia will call up 300,000 military reservists. Putin also made veiled threats to NATO, referring to Russia’s nuclear weapons stockpile. In the wake of those statements, commodity prices rose slightly higher, with gold rising just under 1% and silver nearly 2%.

Meanwhile, job losses continued at Gap Stores and Boeing
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both announced staff cuts. Gap plans to cut 500 jobs as they want to get back on track. The retailer has struggled over the years with the most recent bad news being the loss of their partnership with Kanye West. Boeing also announced it would cut 150 jobs in its finance department. This continues a trend we’ve seen in recent times of shrinking the workforce. Initially, the losses were mainly in the tech sector; however, the spillover to other sectors is worth keeping an eye on.

Finally, bitcoin made a slight recovery from its recent lows on Monday, trading back above $19,000 in premarket. I often refer to bitcoin as an indicator of market confidence and $20K is a threshold between a confident market and a shaky one. We’re at that level right now, and with VIX hovering around 27, it’s not that hard to see why. I wouldn’t be surprised if we see sideways action this morning until the Fed announces it. We will then see how the markets react to the Fed. Regardless of the market action, I think on days like these it’s important to remember your trading goals and time frame and act accordingly.

tastytrade, Inc. comments for educational purposes only.

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