Option Professor-Stocks-Time to Sell the Last Rate Hike? Switch From Growth to Value? Read It

April 22 2023 Option Professor Opinions & Observations

There is an old adage of sell the last Fed rate hike. We are also ending the powerful Presidential Cycle trade of buy on October of the President’s second year in office and sell in the 3rd year of the President term in office. This is something we have told you about and clearly this time it worked like a charm.

Why sell the last rate hike? The theory is the LAG effects are about to kick in and slow the economy down. The EARNINGS decline that follows can REPRICE stocks and if rates remain higher for longer it weighs on VALUATIONS. Here’s the TRUTH as of today. The lag effects have mostly been seen in manufacturing which is a product of supply chains normalizing and overordering during and post pandemic.

Services continues to be strong as the consumer is employed with higher wages, higher interest on savings (5X in one year!), and the baby boomers collecting social security just got a HUGE raise as well. This has translated to dining, traveling, gambling and all sorts of discretionary spending and is strong.

HERE’S the RUB!! Everyone who keeps talking about the Fed is done has a VESTED INTEREST in saying the Fed is done (they own stocks-bonds-real estate) and so they have said this for the last 3 Meetings. Fed officials are NOT going to say they are going to hike until Fed Funds is way ABOVE CPI and the REAL interest rate (10 yr Treasury LESS inflation) is also POSITIVE (right now 5% inflation-10 yr 3.57%=-1.43%) Owners Equivalent Rent has been sticky and NYC rents just hit a RECORD. The CORE was 5.6% and RISING The VIX saw16 handle this week (52 week LOWS) and S&P & QQQ Resistance HOVER above at 4210/330.

The point is there is a lot of come line betting here on INFLATION, FED PAUSE/CUTS, and RECESSION. Where’s the BEEF? Our OPINION; Crude Oil & Gold FAILING and rolling over ($84 & $2075) suggests slowdown. The 10 yr Treasury ABOVE 3.30% DODGED a bullet as a air pocket to 2.75%-3% lies underneath Should the 10 yr. Treasury & 2 yr Treasuries close ABOVE 4% & 5%; REPRICING ASSETS’s the story Q2/Q3. With the VIX making 52 week LOWS; NOBODY is positioned for HIGHER RATES & HIGHER DOLLAR. The BANKS announced EARNINGS this week and B of A’s Moynihan says CONSUMER has Room to BORROW

Let’s let the markets show us the way. Let’s RESPECT the other side of every trade we do. MEANING-have your EXIT strategy in place either via Trimming, Replacement Trades, Covered Calls/Married Puts/Collars. THIS WEEK we get BIG BOYS earnings MSFT GOOGL AMZN META & May 4 AAPL. What’s the GUIDANCE?

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The Option Professor

REMEMBER All investing involves a risk of loss and it is not right for everyone. CONSULT YOUR BROKERAGE FIRM to determine your own suitability and risk tolerance. Past performance is not indicative of future results. Information and opinions are provided for informational purposes only It is NOT advice

Jim Kenney

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