What Does The Fed Rate Hike Mean For Stocks Now?

The long awaited day finally arrived. After hanging around a near zero interest rate environment for almost 8 years, the Fed took action. The Federal Reserve raised the benchmark rate .25%, noting the considerable improvement in labor market conditions, and confidence in higher inflation as contributing factors.

This was the first rate hike in nine years. That’s a long time. Twitter, Instagram, and iPhones weren’t around yet. The Kardashians weren’t on TV and Facebook was in its infancy. The great recession was still in the future.  Donald Trump’s hair was in question and the Cubs hadn’t won a World Series in my lifetime. Some things change, some things remain the same.

My gut feeling, and based on what Chair Yellen said in the press conference, have me thinking the Fed is still cautious. I’m not looking for more action from the Fed any time soon. I think they want to let the markets and economy adjust and absorb yesterday’s decision before ramping up any more hikes.

I think the markets are going to respond positively into the end of the year. Looking out a bit further, I like buying the January E Mini S&P 500 2100-2125 call spread at 9 points ($450.00) or better. Risk is defined to the cost of entry plus fees and commissions. Expiration occurs on 1/15/16, and I am inclined to stick around until the end. If the market goes the other way to the downside, I would try and limit a loss to four points.

For those interested Walsh Trading is holding our weekly grain webinar Thursday December 17th, at 3:00 pm Central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup.

RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT.  WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.