Fed, Markets, and My Loss: Analysis of a Tumultuous Evening

Last night, the market danced to the tune of the US central bank. The rate hike was expected, but the speech that followed caused a significant wave of selling before an unexpected rebound. So, was it just a technical bounce or the start of a new trend? In this article, I'll break down this turbulent session for you, the implications for inflation and the indices, and I'll transparently share my own trading experience, which ended in a loss.

Subscribe to the YouTube channel in 1 click

Deciphering the Fed's Decision

There were no big surprises: the US central bank (the Fed) raised its rates by a quarter point, as more than 90% of analysts expected. What's interesting is that the decision was unanimous. But the speech from our friend Kevin (the Fed Chairman) really didn't sit well with Wall Street.

The reaction came in two phases:

1. A wave of selling during his speech, which pushed the markets to very low levels.
2. A rebound at the end of the session, once he stopped talking, which continued overnight, thanks in part to the Asian markets performing quite well.

The big question is whether this rebound is sustainable. It seems to be a bit more than just a technical bounce, as major investors took the opportunity to scoop up stocks at low prices.

In any case, there's one person who must be very unhappy: Donald Trump. He had appointed Kevin hoping for a rate cut, an idea he's obsessed with, especially because he's a real estate mogul. Obviously, it's easier to sell homes when you can borrow at 2% rather than over 5%.

Inflation and the Fed's Independence

The economic context is tense. The 10-year US Treasury yields are above 5%, which makes one think twice before buying a property. One might be tempted to wait for a rate cut, but that's not really the scenario taking shape. The Fed seems determined to raise rates again to kill inflation, which is likely to be high this winter, especially for food products due to poor harvests nearly everywhere.

This is where we see the full importance of the US central bank's independence. It's their great strength and what reassures the markets. Even if the US president applies pressure, the Fed does as it pleases. That's why the dollar is the reserve currency, not because Americans have more aircraft carriers or eat more hamburgers. This independence is the bedrock of their financial superiority.

My Trading During the FOMC: A Lesson in Humility

For me, the evening was not good at all. I gave back all the gains I had made on Monday and Tuesday. I have a technique for FOMC days: I allow myself to take a risk equal to my recent profits. It works 80% of the time. Well, yesterday, it didn't work. 📉

I decided to take a rather large position on the Nasdaq, at nearly $300 per point. I was at a great level, but a 50-point drop in a few seconds caught me off guard. When you have such rapid fluctuations with positions like that, you don't think: you take your loss. That's the game. It also shows that the stock market isn't about winning every time. If it were, I'd be profoundly bored. My only mistake was going all-in too quickly.

Technical Analysis of the Indices

• Dow Jones: It took a good hit. The rate hike penalizes banking stocks, like Goldman Sachs, which warned of a decrease in credit allocation. However, the index saved the 52,000-point level by bouncing off a monthly support.

• Nasdaq: This is the most interesting one. It didn't really tumble like the others. It quickly returned to the middle of its range, as if nothing had happened. This might be a sign that the bottom is near for this index. If we get back to around the 29,140-point level, I might take a position again, but more cautiously this time!

• S&P 500: It has been in a clear bearish trend for a month. The market is in a phase where downturns are stronger than upturns. Caution is therefore advised: when you go long on a rebound, you should cash in your profits quickly.

Kevin's Direct Style and Other Assets

I like to compare Fed chairs. We had people like Ben Bernanke, who had a knack for reassuring the markets. He could lift your spirits even if you had cancer. Kevin is not the same style. He's direct, blunt. He tells you: "Sir, you have cancer, you have 6 months left. Next!" Investors don't like the raw truth, but personally, I prefer it.

His speech brought everything down:

• Gold retreated.
• Bitcoin fell back to 75,000.
• Oil dropped 4 to 5%, even though it remains at very high levels. By the way, don't expect a quick drop at the pump. It's well-known that barrel price hikes are passed on the next day, but for drops, you have to wait a month…

Conclusion

To sum up, the Fed remains firm on inflation, which is keeping the markets in a bearish trend. Volatility is high, and caution is necessary, especially when it comes to securing profits quickly on rebounds. My personal loss last night is a good reminder: discipline and risk management are paramount. You don't win every time, and that's precisely what makes trading so interesting.

I've shared my analysis and my experience with you unfiltered, a bit like Kevin. That's my style; I don't know any other way. By the way, next week, I'm launching new thematic channels (economics, history, psychology…). If you appreciate the content, feel free to subscribe!

Sign up for the newsletter and receive a $100 USD gift token