Today was a huge day for the markets as the Federal Reserve released their November statement.
Moments after the release, the markets raced to all kinds of highs.
The Fed decided to stand pat on rates but also noted they intend to raise rates in December, when they meet again.
At this point it is almost impossible to browse the Internet without coming across multiple articles detailing some nefarious manipulation by the Fed.
Basically, they break down into these categories:
- The Fed is in bed with Hillary Clinton and will not raise rates because the markets will crash and Trump will win.
- The Fed is in bed with President Obama and won’t raise rates because a market crash would tarnish his legacy.
- The Fed is part of a global money-manipulation conspiracy.
- The Fed is stupid and doesn’t know what they are doing.
Well, here’s the truth: None of the above!
Look, it’s easy to take cheap shots at Janet Yellen and her cohorts but the fact is, they are doing what they feel is best for our country and our economy.
Without a doubt, the Fed has painted themselves into a corner.
They started out talking about data-driven stats that would dictate rate hikes and have morphed into giving statements that no one really understands.
At this point – and actually for the last couple of meetings – it probably would have been prudent to do at least one rate hike.
The data wasn’t what they wanted but it was definitely good enough.
Normalization is needed.
Yes, economic growth has been slow but unemployment is close to pre-2008 levels and commodity prices have recovered (Inflation pressure).
The longer the Fed holds back, the bigger the risk they miss their window of opportunity.
So how do we play this market going forward?
With extreme caution!
The November Presidential elections will surely cause some volatility.
Especially if Trump is successful.
The holidays are right around the corner so retail sales take center stage.
And then there is the Christmas gift no one – especially the gold bugs – wants, a rate hike.
The next 2-3 months are probably a period where traders want to keep their portfolios in high levels of cash.
Dry powder will be critical and with all the talk of leveraging and hedging portfolios, the safest asset during a crash is cash.
Play it safe for the next 12 weeks. Keep plays short and take profits without hesitation.