Navigating the Post-Fed Market Action
Conditions for a major positive turning point do not look good.
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We have some mildly negative action as investors await the FOMC interest rate decision this afternoon at 2 p.m. ET. That will be followed 30 minutes later by a press conference with Fed Chair Kevin Warsh.
Fed funds futures indicate a 92.8% likelihood of a quarter-point hike, so if there is no hike, that will definitely be a surprise. However, I’m not so sure the celebration of dovishness would last long. This just delays the decision until the next meeting on October 28. I suspect there may be political pressure to hike now and then hope it won’t be needed again right before the midterm elections. A hike today is better than a hike a few days before the midterms.
I will be very hesitant to chase a spike if there is no rate hike, as I think it would reverse quickly.
What Matters Is the Press Conference
If there is a quarter-point hike, the market reaction will depend on what Warsh says at the press conference. He will likely continue his policy of not speculating about future decisions, but that is exactly what the market will be focused on. Everyone will be looking for subtle signs of how hawkish the Fed really is. The level of dissent will matter, and the dot plot will be closely scrutinized.
Unfortunately, conditions for a major positive turning point do not look good. Significant problems exist both from a policy standpoint and a technical standpoint. Inflation and where it is heading remain unclear, and the bond market is pricing in higher rates.
Technically, equities have been struggling and correcting for a while, but nothing indicates a change in conditions is about to occur. We are still in the middle of seasonal weakness and have to wait a few more weeks before we can start to anticipate third-quarter earnings. Conditions are not favorable for positive trending action.
I Would Not Trust Post-Fed Strength
The bottom line is that I wouldn’t trust post-Fed strength to last long. In fact, I think it will be viewed as an opportunity to reduce exposure and will be sold aggressively. We may not see any strength at all, but that would be a healthier scenario, as it will attract some bottom fishers looking for a low.
Game Plan
I’m focused on my individual stocks and feel well positioned for now. I don’t hold anything I wouldn’t want to add to if the right technical action occurs. For example, two big-cap names that I favor, SpaceX (SPCX) and Amazon (AMZN), are both developing well. I want to add to them, but I don’t feel any great urgency. If they go even lower, I’ll eventually be buying, but if the charts start to improve, then I’ll be buying too.
I view market struggles at this point as healthy. We will work through some important issues and then, after the midterm elections are in the books, we’ll be in good shape for positive seasonality from November through January.
At the time of publication, Rev Shark was long SPCX and AMZN.
