The markets had a lot to digest yesterday. The Dow fell over 300 points. The S&P 500 broke below 1,900 for the first time since August. The economy posted minimal gains in consumer spending and personal income. Yields were flying around doing all sorts of crazy things.
And yet, nothing has fundamentally changed.
We’re still stuck in this ongoing state of volatility, much of it thanks to the Fed. Just before these would-be economic gods held their key interest rate at zero a couple weeks ago, volatility went berserk.
But it hasn’t settled down since. U.S. Treasury bond yields are up 3% one day and down the same the next. What gives?
The institution lost credibility when it decided not to hike rates. It might not have done itself any favors in the days to follow when it said we could expect a rate hike by the end of the year. Either way, they’re just blowing smoke. And everyone knows it.
The Fed is waiting for a couple data points to line up before they make their move. So it should be clear that when inflation ticks higher and wages start trending up, they will raise rates.
That is, assuming those things will happen.
According to Fed chair Janet Yellen, we are very close to a rate hike. Meanwhile, the markets have priced in less than a 50% chance the federal funds rate will go up by year end.
There’s a few key pieces of economic data coming out later this week that should propel this drama forward – namely Friday’s jobs report.
But right now, the market’s so confused that whether we get positive or negative economic data, investors seem to overreact. Again, despite positive economic news yesterday mornrning, the market suffered one of its worst selloffs in a month (which says a lot given the kind of month we’ve had).
So, until it’s clear what the Fed’s next move will be, you can expect this pumped-up volatility to continue.
Remember though, volatility will give Dent Digest Traders opportunities to profit! Making money on wild swings in the Treasury market is what we do.
Just take a look at the chart of the 30-year U.S. Treasury bond below:
Look at that volatility! Like I said, up 3% one day, down 3% the next. This is the kind of environment that offers a lot of short-term trading opportunities for us.
Based on these movements, subscribers of Dent Digest Trader were able to cash in a 16% gain recently – not bad considering we held that most recent trade for just a week – and I just sent another trade alert this afternrnoon that you can take advantage of tomorrow.
For us, the getting’s been good. More trades and gains to come as this Fed-induced market cycle continues. I’d tell Yellen “thanks” if I wasn’t so sick of seeing her face.
Editor, Dent Digest Trader