Stocks May Rally Following The Fed

09/21/2022

2 minutes read

2022.09.21 16:28

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Michael Kramer

What is happening with rates and the is pretty impressive, and the equity market, while down yesterday, has failed to keep up. The Fed meeting today, I think, will not be a surprise on the rate side, with the Fed hiking 75 bps. The WSJ has written a couple of pieces in the last few of days as if to send a message to the market regarding a 75 bps hike. Again, what I care about the most are the projections. Stocks will likely only focus on the rate hike because that is what they tend to do.

I think the market is set up for a post-FOMC rally no matter what the Fed says today; I hate to say it. Implied volatility for options is very high, with only the June meeting showing higher Implied Volatility. You can see how quickly it is expected to come down by Monday. That will likely give the market a mechanical bid and push stocks higher.

SPX Index

Could we rally back to 3920? Sure, we were practically there yesterday. But again, I only bring this up so that everyone knows ahead of time should this happen.

TIP Vs. QQQ

The ETF made a new low yesterday, and the is still trading about 12 days behind the TIP ETF. The TIP suggests that the QQQ is also getting closer to a new low. So whether the market will rally today or not, I don’t think it will make much difference.

QQQ Daily Chart

10-Year

The yield made a new closing high yesterday, climbing to 3.57%. How high the 10-year goes is a good question and one I haven’t figured out yet. I have been more focused on the short end of the curve. But the break higher yesterday is an important one nonetheless.

US 10-Yr Yield Daily Chart

Global

Rates aren’t just rising here; they are increasing worldwide. It is a significant fact because this will be a force that will help to drag rates up in the US. The 10-year rose by 13 bps in both Britain and Germany yesterday; both were new highs. Despite rates rising in the US quickly, they are rising even faster elsewhere.

German 10-Yr Bond Daily Chart

Micron

Micron (NASDAQ:) finally broke support at $51.80 when it gapped below that level at the open yesterday. I think that sets up that drop to $49.70 and then probably to $46.

Micron Daily Chart