Last December I learned a valuable lesson: be cautious around Fed meetings.
I remember seeing the market sell off. VIX jumped through the roof.
To me it was obvious that the Fed was going to hike rates. They said they would hike rates, markets were sold off, but not so oversold where the Fed was concerned about backing off the rate hike plan.
Then the market sold off. I thought it was crazy. I thought people had already priced in these Fed expectations. I was wrong.
When a similar situation took place in March, I realized that Fed days bring volatility. Why? Investors are obsessed with interest rates and Fed policies. The world’s central banks, led by the Fed, have babied along this 10 year bull market all along the way.
Zero-interest rate policies, quantitative easing, and easy monetary policies have all propped up this market in an effort to combat deflation.
Investors need the Fed to keep the market afloat. The game has changed, and this is what investors rely on.
Fed meetings solidify estimates that markets have priced in, or they rock the boat even more when estimates were not priced in. Then investors move on to speculation about the next Fed meeting. And thus the cycle continues.