Like clockwork, the Federal Reserve meets to put on their dog and pony show for all to see.
This spectacle gets more elaborate with each iteration, even though the outcome is already foretold.
In the last 20 years, the Fed surprised markets with actual rate changes maybe a handful of times.
More often, their commentary, which is parsed for exact wording, is what pushes equities around.
Traders and investors watch with bated breath to see how much the Fed worries about inflation.
So far, they indicated that everything is as expected with current readings being only transitory. Nothing, in their opinion, should persist very long.
It’s tough for Mainstreet to take them seriously when they exclude food and energy prices, two of the most acute aspects felt by everyday people. And their measure of housing is particularly lousy.
But with unemployment hovering at 5.8%, not a historically unreasonable number, they feel little compunction to alter course.
Still, many speculate that beyond their asset purchasing tapering, they may pencil in a rate increase earlier than anticipated.
Given that isn’t likely priced into markets, we could be in for a wild ride to end the week.
On top of all that, we have what’s known as quadruple witching – a fun non-Halloween period when you have expirations for single stock options, single stock futures, index futures, and index options.
If you’ve never seen what it looks like, buckle up cause the word volatility doesn’t often do it justice.
Day traders often whisper about shenanigans perpetrated by big options desks. In reality, it’s more about hedging activity and heavy volume that builds on itself.
But, that often leads to opportunities to pick up or unload positions as the market dictates.
So, if there was ever a time that lined up for active portfolio management, now would be it.
Our hot take
One key sector to watch is the financials. TrackstarIQ searches amongst institutional advisors continue to tick up each week.
Generally speaking, with interest rate risk, financial profits improve through net-interest income (the difference between the rate they borrow and lend).
Tuesday, June 15
- 8:30 AM: Retail Sales May
- 8:30 AM: Producer Price Index May
- 8:30 AM: Empire State Manufacturing Index May
- 9:15 AM: May Industrial Production & Capacity Utilization
- 10:00 AM: Business Inventories
- 10:00 AM: NAHB home builders’ index
- Fed Meeting Starts
Wednesday, June 16
- 8:30 AM: May Building Permits & Housing Starts
- 8:30 AM: Import Price Index
- 2:00 PM: Fed Rate Announcement
Thursday, June 17
- 8:30 AM: Weekly Jobless Claims
- 8:30 AM: Philadelphia Fed Manufacturing Index June
- 10:00 AM: May Index of Leading Economic Indicators
Friday, June 18
- Quadruple Witching
Questions from your clients
- Are we entering an extended period of low volatility?
- Should I consider diversifying into assets like Bitcoin?
- What type of indicators would lead the Fed to raise interest rates?
- When they do raise rates, how much will that drop the market?