Wheeee, this is fun!
We had a lot of fun in our Live Trading Webinar yesterday as we shorted the Russell (/TF) Futures at 1,550 after the release of the Fed Minutes led to an inexplicable rally and the Russell fell all the way back to 1,520 at the close for gains of $1,500 per contract in less than two hours – you're welcome!
What we saw in the minutes was a Fed that is firmly on pace to raise rates 3-4 times in 2018 and, as I predicted in the Morning Report, these was nothing to get excited about and the silly morning rally completely unwound over the course of an hour's trading. The S&P (/ES) Futures went over our 2,728 "strong bounce" line and topped out at 2,747 on a spike after the Minutes were rolled out (2pm) but then quickly fell back all the way to 2,701, good for gains of $1,350 per contract below our line and, after hours, it drifted even lower, all the way to 2,685 for another $1,300 per contract gain!
This morning, in an effort to spin the reaction to the Minutes (as we predicted they would on Tuesday), the Fed's Bullard attempted to soften the blow, saying:
The neutral rate is "still pretty low" and the Fed shouldn't hike interest rates based on the conception from the last two decades of the twentieth century, Bullard added. It is "not the world we're living in today," he stated. In the policymaker's words, the Phillips curve effects are so weak that unemployment at 4%, compared to the natural sustainable rate of 5%, adds only seven basis points to inflation. "A lot" would need to happen for four quarter-point hikes in the benchmark rate this year instead of three, he concluded.
The key here is 3. There WILL be three (3) rate hikes in 2018 – AT LEAST – and that's 1.5 more rate hikes than were anticipated when the market decided to get silly in November. Yes there are tax cuts, but do tax cuts trump rate hikes? The Fed MUST hike rates, they can't…
