The FOMC sees a stronger economy today than at the end of 2017, according to minutes released this morning. While that’s good news overall, it’s not exactly what the market wanted to hear. A stronger economy means that the Fed has a green light for more rate hikes in 2018.
The news spoiled a good day for the market. Stocks were in the green all day and then took a sharp drop late in the session. The Dow eventually finished with a loss of 0.67% to 24,797.8, while the S&P was off 0.55% to 2701.3 and the NASDAQ slipped 0.22% to 7218.2.
In the portfolios, Options Trader sold a position for a nearly double-digit profit, and then immediately re-invested the proceeds into a further out option with potential for greater returns down the line. Learn more in the highlights section below:
Today's Portfolio Highlights:
Options Trader: The portfolio’s March option in CME Group (NASDAQ:CME) is only 24 days away from expiration. Kevin still expects the stock to move past $175, but he wants more time just in case it takes a while to get there. On Wednesday, the editor sold to close the March 155.00 Call in CME for a 95.7% profit.
He then immediately repositioned into a longer term month by adding a few bull call spreads in the name. Specifically, he bought to open 3 June 165.00 Calls AND sold to open 3 June 170.00 Calls. Now, if CME can close at or above $170 by the mid-June expiration, the portfolio will bank a 127% return. Read the full write-up for more.
Counterstrike: "Markets were strong early in the day, with the S&P up over 20 handles as traders waited for the Fed minutes. This was the first Fed meeting with Powell at the head, so traders were interested in the tone of the meeting.
"At first, markets interpreted the minutes as dovish, as there was nothing really new in the language. However, after about 30 minutes of digestion, the market viewed it as hawkish. Meaning the Fed will be raising interest rates quicker than expected.
"Those comments are what turned the market upside down. The S&P lost the whole day and even went into the red, falling over 40 handles from the high." -- Jeremy Mullin
Insider Trader: "Again, no one is arguing that yields are going to stay low forever. But Wall Street thought the return to "normal" rates would be more gradual. It doesn't like it that we're basically at 3% and we got there within the span of less than 2 months.
"It also doesn't want its free money to end. Wall Street wanted low interest rates forever, even after getting the largest corporate tax cuts in history and having the lowest weekly jobless claim filings in nearly 50 years.
"A strong economy doesn't have to mean a "bad" stock market. Even Warren Buffett has said recently that rising rates don't worry him, at least up to 4% or so.
"But stocks hate uncertainty and these are conditions we haven't seen since 2014. Be prepared for continued volatility. And keep an eye on those yields." -- Tracey Ryniec
Have a Good Evening,
Jim Giaquinto
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