Is the Fed looking to raise rates?
Abraham George Macro Musings
The Fed has a plan and it should be more clearer to the world after the Fed meeting tomorrow. They are expected to start dialing down their monthly bond buying program (QE). This is not a news to the market any more and it should not have any real impact to the markets. It becomes news only if they didn’t.
Currently, the market is also slowly pricing in a possible lift-up in interest rates by next June. That is actually a more aggressive timeline on the first rate hike than the Fed projected at their last meeting. After the Wednesday meeting, they should communicate the withdrawal of the bond buying and how it will be done.
If history is any guide, they will map out equal cuts to their current $120 bio purchases each month. A cut of $15 bio a month could get them to the end of QE by June of 2022 and then they can think of raising rates.
This could normally be viewed as a hawkish move by the Fed and being hawkish in normal times is not good for the stocks, plus it is risk-off. But viewed differently, stocks can still hold their ground as the Fed is being accused of being behind the curve in managing inflation.
Important update: Breezy Briefings is planning on issuing a crypto coin or token to build the community and reward loyal readers and followers. Details will be announced via the newsletter and telegram channel. If you or anyone you know have proven expertise in community token launches or if you have specific suggestions or feedback, please get in touch. Stay tuned!
The S&P 500 is currently 16% higher than its March record highs. Another index which has been in a long drawn consolidation is the Russell 2000. Yesterday it sort of catapulted up by 2.6% breaking above its previous March highs.
Historically, small caps outperform large caps coming out of a recession as they are very correlated with interest rates moving higher in an economic recovery. With this, the gap between the S&P 500 and Russell 2000 closing should also happen and it may happen very quickly too.
The COP26 Summit in Glasgow ended with more than 100 leaders from all over the world committing to ending deforestation by 2030. With the Pope’s blessings, some strong commitments and power money were announced to keep the momentum going for a new carbon-emission free world. President Biden even apologized for President Trump’s lack of understanding on these matters and the US exit from the Paris accords on climate matters. We are in for some big changes that should create a new ecosystem and many new businesses.
So, there we go. Thanks for reading Breezy Briefings. If you enjoyed this, I'd really appreciate if you could take a second and tell a friend. Honestly. It makes such a big difference.
Forward this email. Recommend the newsletter. Share on Twitter, WhatsApp, Telegram, LinkedIn, Slack, wherever!
Join Breezy Briefings’ Official Telegram Channel: https://t.me/BreezyBriefings
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.