I’m typing quickly to get this out before today’s 2:00 EST Fed announcement. So please excuse any typos.
But I think it’s important to share my thoughts with you as we get ready for this important event.
Here’s what’s on the line…
The Federal Reserve is wrapping up its regularly scheduled meeting on interest rates today.
At 2:00 EST, the Fed will issue a press release, almost certainly hiking its target interest rate by 25 basis points (or 0.25 percent).
Shortly after, Fed Chairman Jerome Powell will host a press conference where he will share more color on the Fed’s decision and field questions.
This press conference tends to drive market action as any unexpected comments can catch traders off guard.
Today is likely to be a similar situation. So it is important to pay attention to the nuances that emerge from this press conference.
Let’s think about what Jerome Powell is likely to say to investors today.
The Purpose Behind Powell’s Fed Announcement
As you know, the Fed is in the process of raising rates to fight inflation.
And while inflation data has been coming down, Powell is still very concerned. The Fed Chair has often referenced inflation challenges from the 1970’s. And during that last crisis, inflation backed off at first, only to return with a vengeance.
Powell wants to make sure this doesn’t happen again, and has committed to “keeping at it” — hiking interest rates until it is clear that inflation is truly beaten.
The stock market tends to react poorly to higher interest rates.
Higher interest rates make it tougher for speculative businesses to borrow money. It gives consumers an incentive to save instead of spending money. And higher interest rates gives investors better options with decent returns — so the stock market is no longer the only game in town.
Despite tough talk from the Fed, stocks traded sharply higher in January. And many of the most speculative (a.k.a. “risky”) stocks led the charge higher.
This rebound is concerning to the Fed. Because it basically offsets the Fed’s campaign against inflation.
A rising market is inflationary by nature. And creates more work for the Fed to keep inflation from returning.
So today, I expect Powell to respond harshly to the recent market rebound. And hawkish comments from the Fed Chairman could quickly send many of the most speculative stocks lower.
So today, I see a lot of risk for these speculative stocks to trade lower. And the Fed press conference could be the next catalyst for this area of the market.
How I’m Positioned Ahead of the Fed Announcement
There’s still a lot of uncertainty in the market. And when uncertainty is high, it’s important for us to take less risk as traders.
So with that said, I’m currently holding a lot of cash in my Speculative Trading Program and also in my Accelerated Income Model.
At the same time, I’m positioning for two potential scenarios from today’s Fed meeting.
If (as I expect), Powell keeps his hawkish tone, speculative stocks could trade sharply lower.
These stocks rallied sharply as investors started to anticipate lower rates. So if the hope of lower rates is taken away, we could give back a large portion of January’s gains.
I currently own put contracts on Bill.com Holdings (BILL) and Snowflake Inc. (SNOW). Both are high-valuation tech stocks that could be driven sharply lower by hawkish Fed comments.
On the other hand, I also own call contracts on the SPDR Gold Trust (GLD) which tracks the price of gold.
If Powell is more dovish with his comments, investors will expect lower interest rates.
This will naturally cause the dollar to weaken, raises the risk of inflation, and should drive gold prices sharply higher.
If this happens, you’ll want to brush up on the best ways to play a rally for gold.
To keep track of my actual trades in real time, check out my Speculative Trading Program.
This program is how I invest my own family’s savings. And I send out live trade alerts BEFORE I put my own capital to work. For just $147 a month, you can follow along — or pick and choose the specific trades that work best for you.
Keep a close eye on the market’s reaction to today’s Fed announcement. This could be a key turning point for the market – leading to big profit opportunities for nimble traders.
Here’s to growing and protecting your wealth!