What the Fed’s Latest Announcement Means for Traders

Another Fed Day has come and gone.

Last Wednesday, the central bank released an updated statement on its monetary policies and what it sees coming down the pike for the economy.

Investors desperate for clarity were hanging on every word that Fed Chair Powell had to say. The entire event, however, ended up being a bit of a mixed bag in that regard.

The major headline was that the Fed didn’t raise interest rates again. If they had, it would have marked the 11 consecutive rate hike in a row.

This part was welcome news to investors worried that the Fed was being too heavy-handed with its interest rate hikes. They feared that further rate hikes could send the economy spiralling into a recession.

But despite pausing the current rate hiking cycle, the Fed has left the door open to future hikes if necessary.

In fact, the expectation of the Fed is that their benchmark rate will end up being closer to 5.6% by the end of the year – up from 5-5.25% currently. Not only that, but Powell has stated the Fed won’t be looking to lower rates for a couple more years.

That’s certainly tricky news for investors to navigate. The market has to figure out how much more upside can be priced in.

For now, the answer seems to be quite a bit. The S&P 500 is trading at levels it hasn’t seen since April 2022.

And with the VIX trading where it was right before the Coronavirus Crash of 2020, the conditions are certainly there for a disappointing surprise that sends the market lower.

All this tells me is that we’re still in a trader’s market.

There will be plenty of both bullish and bearish opportunities. Traders who that are nimble and can get in and out of short-term positions will likely have an advantage over buy-and-hold investors, at least for the time being.

It’s crucial for market participants to understand the kind of market they’re dealing with. Not every strategy will work in every kind of market environment.

I personally like to look for a combination of mean reversion and breakout trades. Over the last several weeks, readers have been alerted to opportunities in stocks such as Tesla and Cathie Wood’s ARKK ETF. Those were great examples of breakouts.

As the market is now reaching bullish extremes, it’s time to be on high alert for mean reversion opportunities as well as exit points on those breakout trades. It’s all about adapting to the market that’s in front of you right now.

You can be sure that once I find another great trading opportunity, I’ll be discussing it right here in Market Minute.

Happy trading,

Imre Gams

Are there any stocks you’ve been watching for a breakout?

Let us know your thoughts – and any questions you have – at [email protected].