A Rate Hike is Almost Assured
Can you feel how nervous this market is? SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is only down by about 2.5% from the November 3rd high, but investors are voicing opinion as if it had been much worse.
The reason it is like this is because of the FOMC and the floundering interpretations of Wall Street in association with the language coming from FOMC officials. That is only going to be compounded on Thursday when seven officials including Janet Yellen offer opinions through scheduled appearances.
The media calls this type of action uncertainty, and that is attributed not only to environments in which FOMC policy is not going the way Wall Street wants it to go, but the term is also used when political headwinds upset investor sentiment. Ultimately, that is exactly what is happening in today's environment, investors are becoming upset because the FOMC appears ready to raise interest rates and they don't like it.
I have already been vocal about my opinion, and that is that interest rates are going to increase in December, and the recent onslaught of FOMC speeches, not including what will happen tomorrow, was in large part notice to the investment community that interest rates were going higher, but the FOMC officials may indeed have taken something from the reactions they received and that may be why we're seeing another round of speeches.
Specifically, there was tons of negative feedback after Wall Street realized that interest rates were moving higher, some claimed that there was dissension on the Board, fingers were pointing at Janet Yellen suggesting that she did not have control anymore, and anxieties started to run high.
However, when we step back and look at the situation in an objective manner we can see that the anxieties are partly premised on a the notion that the FOMC is not acting as a unified group, but that may not actually be true at all. Unanimous votes, or virtually unanimous ones, have been regular and Janet Yellen, if for nothing else, seems to have a relatively open forum and somewhat democratic approach to the decision-making process, so there may be more unity in the FOMC than the media or Wall Street has given credit.
Although we cannot be sure until after the fact, the rationale for tomorrow's onslaught of additional FOMC speeches, at least in part, may be to convey a unified message, but if they are intending to appease the financial markets they also should add dovish language that suggests they also are unified in their understanding that they must not push the envelope and a slow approach to the interest rate process would be wise; this would be a message that Wall Street will embrace, so if the FOMC speeches tomorrow convey that unified message expect positive interpretations.
Monitor TBT and TLT when watching rates too.