Take a close look at that (ridiculous) chart.
What it shows you is investor rate hike probabilities for November (grey line) and December (black line), overlaid with the myriad policy pivots (Fed commentary included). As crazy as it may sound, our omnipotent Fed has gone back and forth on its rate hike rhetoric 7 times in just the last 10 months.
- Hawkish (December 2015)
- Dovish (March 2016)
- Hawkish (May 2016)
- Dovish (June 2016)
- Hawkish (August 2016)
- Dovish (September 2016)
- Hawkish (October 2016)
Absurd? You decide.
Now, with current December rate hike expectations at 70%, here's the key takeaway for investors confused about what all this Fed jawboning means:
(An excerpt from today's Early Look by Hedgeye CEO Keith McCullough)
"If we’re right on the profit, employment, and GDP cycle slowing to its slowest point in Q4 (we’re at 0.4% q/q SAAR GDP), Yellen's either going to pivot for the 8th time (back to dovish) or make her 2nd policy mistake of #TheCycle and hike into the slow-down."
That's right. When the Fed raised rates last December, the S&P 500 dropped over -10% (peak-to-trough), as economic data continued to slow and investors freaked about the prospects of rate hikes into this slowdown.
In other words...