The best play on the Fed's decision could be a no-play, according to this industry veteran

The best play on the Fed’s decision could be a no-play, according to this industry veteran

It’s time to go for the Fed, which is set to make a fourth consecutive major hike, although there are obviously bigger questions hanging over December’s plans. Wall Street is understandably on the fence, especially after Tuesday’s batch of good is bad data.

Our call of the day from Stuck in the Middle blogger Mr. Blonde offers a simple strategy on what to do after three out of four weeks of stock market gains and what he hopes is a “more of the same” message from the Fed.


“Don’t expect pre-commitment on the magnitude of rate hikes and continue to keep options open,” writes Mr. Blonde, who has shifted to a “more neutral tactical view” in recent weeks on expectations. more “two-way risk” from now on. He identifies himself as a former equity strategist for a major corporation and an adviser to a long/short hedge fund.

“Bottom line, Mr. Blonde feels tactically neutral at current levels with a central focus that remains defensive. Bypassing the FOMC meeting seems a little too obvious, but continuing a +10% move has not been rewarded this year. Sometimes it’s best to sit back, observe and wait for direction,” he said.

As many, Mr Blond doesn’t see the Fed putting the brakes on rates until it’s confident inflation is nearing target, with any talk of that unlikely before the first quarter of next year.

“Expect the S&P 500 price to stagnate around 17.5x forward P/E, which currently equates to ~4075 (or +4%) based on consensus EPS of $233 ( and falling) for 2023. Why 17.5x? Historically, valuation multiples compress as long as the Fed increases rates (yes even if it increases at a slower pace) and the 2-year moving average acts as a resistance zone,” he said.

The S&P 500 SPX
ended Tuesday at 3856.

While the technical backdrop has improved and it’s not impossible to rise another 4% in the S&P 500 – leaving 80% of stocks above their 50-day average, on par with the highs of mid-August – a pivot from the Fed could be needed to propel stocks higher, and that’s unlikely, he says.

His chart below shows that periods of declining EPS in the next twelve months (NTM) “generally provide a poor backdrop for equities with 3-month average returns of -3.7% and positive returns below 40% of the time, both significantly below average Selling rallies is a favorable strategy.


Mr. Blonde also points out that doing nothing is more rewarding than before, with 6-month US Treasuries BX:TMUBMUSD06M
offering a yield of 4.6%, which isn’t bad when compared to a BBB Corporate Cash Credit yield of 6.5%.

“This is a significant adjustment within the capital markets and one that should be felt over several quarters as multi-asset managers move gradually, but systematically, to zero volatility and a modest yield offered. by cash,” Mr. Blonde said.

The steps

ES00 Equity Futures


are mostly stable, as well as bond yields BX:TMUBMUSD10Y

with the DXY dollar
lower. CL Oil Price

are also down. Hong Kong Stocks HSI00
jumped 2.4% on continued hopes of easing China’s zero COVID policy.

Wheat futures drop W00
after Russia joined an agreement allowing grain exports to leave Ukraine.

Lily: 20 dividend stocks that could be the safest if the Fed causes a recession

The buzz

The Fed’s decision is expected at 2:00 p.m. Eastern Time, followed by a press conference with Fed Chairman Jerome Powell at 2:30 p.m. Prior to that, the ADP jobs report showed an October gain of 239,000 jobs, beating expectations.

The stock is up after news of a $5 billion settlement to settle lawsuits and claims related to opioids. It also reported higher revenue and profit, although it lowered its forecast.

Paramount PARAA
are each down on earnings disappointment.

After the close we will have a big prize including Robinhood HOOD,
QCOM Qualcomm,
with Costco COST
monthly sales.

Airbnb shares ABNB
are down in premarket on a weaker outlook for the current quarter. AMD Advanced Micro Devices
is up on strong sales and plans to get rid of excess inventory.

Tesla TSLA
closed its flagship store in China, Reuters reported, citing sources.

Shipping giant AP Moeller-Maersk DK:MAERSK,
cut its forecast, saying freight rates have clearly peaked.

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Will the major indices continue with this bearish rally? A big clue lies in the iShares Russell 2000 IWM ETF,
who took the lion’s share of the winnings, says Michele “Mish” Schneiderdirector of business education at, in an article for See It Market.

Schneider provides several charts showing how ETFs for major US indices—the SPDR S&P 500 ETF Trust SPY
and Invesco QQQ Trust Series I QQQ
with IWM – approach the daily moving averages of 50 or 200 before the Fed decision.

But IWM’s “leadership performance suggests he is the one to watch for whether stock indices will continue to rise or turn back to their respective resistance levels,” Schneider said, who sees him poised. for a “strong breakout”.

See the market

Read the whole post here.

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