Markets hate uncertainty.
So, why did they face-plant on one of the most well-telegraphed non-interest-rate-related changes in Fed history?
Everyone knew the Fed wouldn’t change rates THIS month.
However, we didn’t know what it would do at the next meeting, or any future meetings.
And the subtle changes to what the Fed said completely changed the market’s expectations, forcing a mass revaluation of every equity all at once.
We know it’s left a lot of you wondering not only what happened but what to expect.
Obviously, we’re going to unpack the entire circus for you…
…but we’ll take it one step further…
…and give you a trading idea that NO ONE is talking about right now.
Dissecting the Crash
We’ve been saying for several months now that we expected interest rates to remain higher for longer.
And that’s precisely what the Fed said.
Before the meeting, the bulls started to convince everyone to expect interest rate cuts by early 2024.
Chairman Jerome Powell firmly slapped that idea right out of their heads.
You can actually see this through the fed fund futures data provided by the Chicago Mercantile Exchange (CME).
The histogram below lays out the market’s expectations as a probability regarding the Fed rates for the December meeting and how it has changed over time.
You’ll notice the expectation for a quarter-point rate hike increased as we approached and heard the Fed announcement.
The real kicker is the changes when you go out to July 2024.
Market participants originally projected rate cuts happening sometime between Q1-Q3 of 2024.
Now, those probabilities have significantly deteriorated.
The Fed effectively told markets that it wasn’t sure it had inflation under control. Therefore, we should be prepared for higher interest rates for longer, potentially with another rate hike or two.
Markets are excellent forecasting tools, discounting a stream of earnings or cash down to a single value — the share price.
The longer interest rates stay higher, the less any future earnings are worth to us right now.
That’s why we saw high-growth names hit the hardest when interest rates began to climb.
If interest rates were at 0%, anything in the future would be worth the same amount today.
Essentially, the Fed made every stock we own worth less, or at least that’s our perception.
So, where does that leave us exactly?
Value stocks that generate cash now will see more volatility on earnings that miss or beat, as well as forecasts for the current year.
High-growth stocks will be more volatile on a day-to-day basis and much more sensitive to economic data that change the market’s forecast for interest rates.
Or, to keep things really simple:
- Value stocks
- More volatile earnings
- Less volatile day to day
- Growth stocks
- More volatile day-to-day
- More sensitive to economic data
And if you think you can hide in high-paying dividend stocks, guess again.
Remember how higher interest rates make future cash flows worth less?
That’s pretty much a death sentence for dividend stocks. And it’s why you’re seeing companies like Altria and Verizon trading at levels that give them dividend yields north of 7%.
There’s also a good chance the Fed will drive the economy into a recession. It’s the only way we see it getting inflation under control.
Since a lack of supply is driving our inflation problem, that’s what we’ll need to get us out of this mess.
Unfortunately, all the reshoring and manufacturing plants returning to the United States aren’t going to start coming online until 2025 (e.g., Intel’s Ohio plants).
The Stealth Trade
The Fed’s recent decisions fundamentally shifted market expectations.
In such uncertain times, traditional approaches like buying shares or call options expose you to higher risk and costs.
Because the extra volatility means you could be in the hole minutes after buying a stock.
That higher volatility also makes options more expensive. So, you’re either forced to overpay or get left at the altar.
However, there’s a third way most folks never consider…
…and it’s a method that Bryan Perry uses to great success.
It’s known as selling puts, something folks can do in retirement accounts.
You see, by selling a put, you get several advantages over buying a stock or a call option:
- A statistically higher probability of success
- Get to sell the option when prices are higher than normal
- Don’t need the stock to go higher to make money
The cool part about selling put options is that you can turn this strategy into a steady stream of income.
Plus, when you sell a put option, every day that goes by works in your favor.
So, while everyone else is trying to bottom fish, you can sit back and make money just by letting time go by.
Now, we know some of you hear the word “options” and immediately head for the exits.
But here’s the thing — if this strategy exploits the current market conditions better than any other, isn’t it at least worth understanding how it works?
You don’t have to use it. The choice is yours.
However, no one should let fear decide for them.
Take advantage of the trading strategy that exploits the current market conditions better than any other.
Act now to unlock your guide to effectively selling put options before this opportunity passes you by. It’s easier than you think.