How Fed Rate Hikes Influence Markets

Mr. J to the Pizzo just announced a 25 basis point rate hike, which is the second time they have decreased the velocity at which they are increasing rates, and over 90 percent of the market actually expected this 25 basis point rate hike. But we are not in the clear yet because Jay Powell, who is the Federal Reserve chairman, said that there will be ongoing hikes because they will be appropriate because inflation has eased somewhat but remains elevated, and we will continue to do our job until we reach the targeted two percent inflation rate. Now, there was further discussion after he actually announced the 25% rate hike. There was someone that asked the question, “Okay, what if inflation is coming down very, very quickly?” He then said, “Hey, if it’s going down very quickly, we will potentially consider changing our policy,” which would then hint at a potential pivot sooner than inflation and CPI coming down to the target level of two percent.

They also mentioned that the job market has been extremely strong, 247,000 new jobs added on average per month over the last three months, and he does believe that, in order to bring down inflation, there is going to have to be below-trend growth and a weaker job market. So he is alluding to, pretty much, that’s what a typical recession is. You see a weak job market, but that’s usually a lagging indicator, and then you also see lower GDP growth, which, again, is a recession. So he’s pretty much hinting that he really does believe that there’s going to be a recession, and he’s trying to be hawkish. But the markets are acting very, very positively, as you can see, the S&P 500 is extremely strong today, breaking out past this previous high here, guys, this is a big deal. Not only are we confirmed out of this broadening descending wedge that we’ve been in for an entire year, which is typically a bullish pattern, which we actually mentioned before this even broke, that we were very, very highly likelihood that we were going to break to the upside, and now we are starting to confirm, and I do want the daily close above this key level, which is now creating the first true higher high over the last 12 months, which is a big deal, guys. And we’re also seeing the dollar continue to fall, falling well below this level here, you can see it is falling quickly, the euro is skyrocketing relative to the dollar over 110 now, and it’s very, very obvious that we are having a massive pump in the markets.

Okay, now, this is a thread that I put on Twitter, if you guys are not following me on Twitter yet, go follow me If you were to look at why we are potentially being bullish, and before I tell you why I think we’re due for this big rally that’s happening, I’m actually long Bitcoin right now. Let’s see if it’s closed, oh, it’s about to close here, so I just took a little long trade here on buy bit, and the reason why I am actually bullish on the markets over this quarter and potentially through the summer is because of these 10 reasons right here.

First of all, you saw that the dollar is dramatically dropping, but more importantly, inflation is topping, it’s heading down lower, you can see that we’re coming all the way down to 6.3 percent, and we’ve got the next announcement on this, I believe, early to mid-February. You usually see the actual planning in the market, so they will forecast that we are going to pivot and then drop rates and market’s price things into the future six to twelve months, and I’ve shown this chart before. The markets usually have a big drawdown, AKA a sell-off, after the FED pivots, so that’s what everyone gets wrong. Is it like the person that you know sees a yellow light when they’re pulling up on their car? There are two different types of people. One person sees the yellow light and they’re about to approach the light, and they just step on the gas a little bit and go through the yellow light before it even turns red. There’s a second type of person that sees the yellow light potentially coming, maybe they see the countdown on the walking path on the side, and they watch the countdown, and then they slow their car down. Then, all of a sudden, it turns red, and then they speed up because they’re like, “let me try to just get through here.” A lot of retail traders are going to just try to get through here when there’s a Fed pivot because they think that that’s bullish, and they’re going to end up buying the top on this rally. I can tell you that is going to happen.

There’s going to be a rally, potentially who knows how high we go, I’m not predicting how high we go. Maybe between 4,300 and to the top here of 4,800. I think it’s going to be somewhere in that zone. I don’t know that we’re going to go to new all-time highs like a decent amount of other investors believe, but I do think this relief rally is going to catch a lot of people off guard, and then we’re going to end up in a place where a lot of retail starts buying the top because the pivot is coming, and then shebang, we’re going to see a massive drawdown. A lot of people are going to be stuck. I am actually very bearish, but again short term, I am bullish because of these reasons.

Large company layoffs have also been occurring, which typically signals the short-term bottoms of markets. Guys believe it or not, it can actually be bullish when companies are laying off tens of thousands of employees in the short term and actually allows their margins to be larger. Also, like we’ve seen potentially with Twitter too, Elon Musk hired, fired, attacked 75% of their employees, and they’ve seen the most activity on Twitter ever and are actually starting to become a lot closer to not burning through. I think it was like a million dollars every few days that they were burning through. It was a pretty bad burn right here, so actually this can be bullish, and it can be since it’s more of a lagging indicator, and again, the markets will price in the future. A lot of the time, you’ll actually see these big tech companies when they’re laying off. That is a local bottom or a bottom depending on where we’re at in the overall cycle. Indexes that typically lead the S&P 500, such as the FTSE 100, are at or very, very close to all-time highs. From a technical perspective, I talked about this inverse Head and Shoulders, broadening descending wedge.

We also had bullish divergence, and if we look back, here’s the divergence on the CCI, RSI, MACD, a lot of different things. And then we talk about crypto from that perspective. We’ve gone over this chart here, which is the bottom has actually been exactly 54 weeks, and this happened once again. Okay, from the bottom to the top, you will actually see it…

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Jeff Sekinger

Jeff Sekinger Founder & CEO, 0 Percent Who is Jeff Sekinger? Visionary Trailblazer Sekinger has been in the financial industry for over a decade. Starting

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