No surprises, but it seems like a lot of people panicked anyway.
The Federal Reserve increased interest rates by 0.75 basis points, which is what we thought they would do. Both the Dow and NASDAQ were down big – but that may have more to do with what Fed Chairman Jerome Powell said than what he actually did.
Alluding to further rate increases, Powell said that there was no “painless” way to bring inflation down.
The benchmark interest rate is now at its highest level since 2008 and it will almost certainly have farther to go this year. I’m reminded of Ray Dalio’s prediction that the market could take a hit of 20% if interest rates rise farther.
Which they will.
Of course, this will be spread unevenly. Some sectors will continue to gain despite or even because of this top-down imposed recession.
The dollar was up sharply, hitting a 20-year-high, with USDU (an ETF tied to the dollar’s valuation) hitting a 52 week high.
The other bit of apocalyptic news that hit yesterday should also not have been a surprise. Russia’s Vladimir Putin called for “partial mobilization,” which will boost the number of troops for his invasion of Ukraine.
The nature of the conflict is also set to fundamentally change, as Russia, after some “referendums,” will regard its occupied territories as part of Russia itself.
Though there were some scattered protests in Russia, notably in St. Petersburg, this isn’t a Stalinesque draft of the entire population. One almost admires the ruthless savvy – his action will only impact those with military experience. Other sources of warm bodies – foreign volunteers, prisoners, and the infamous Wagner Corporation will also hit the front lines.
One wonders if some of the people arrested for protesting will be sent to the front… anyway, I’m especially glad to be an American today.
But that doesn’t mean we’re isolated from global problems. The real danger is that the Fed will continue to impose costs on the economy while the economy is hit by supply issues that aren’t under the control of the central bank.
These include the massive dislocations that came from cutting Russia out of the global economy, increased military spending and aid to Ukraine, and the occasional Chinese production halts because of COVID-19 and the frankly insane “zero COVID” strategy.
It’s time to trust in your technical toolkit, the one we’ve been trying to give you since you joined up with us. There are still spectacular wins possible.
More importantly, if you can stay liquid and strike at the right time, it’s in markets like this where the foundations for fortunes are made.
Keep Moving,
Any strategy that makes you money consistently is worthwhile.
Though many new traders believe that trading is primarily about indicators and tools, Chris maintains that it is at least 95% about emotional control.
This is especially relevant in this bearish, choppy market which has made the trading world extremely difficult.
Learn some pro tips to come back from your losses and stay in the game.
WORD ON THE STREET
Fed Raises Rates… and the Prospect of Recession
- Fed Does The Expected, Market Panics Anyway – The Federal Reserve increased interest rates by 0.75 basis points, the third straight hike. “We have got to get inflation behind us,” Federal Reserve Chairman Jerome Powell said. “I wish there was a painless way to do that. There isn’t.”
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Warren Worries About Economy – Senator Elizabeth Warren has called Federal Reserve Chairman Jerome Powell a “dangerous man” in the past, and yesterday’s actions didn’t change her mind. Blasting an “extreme interest rate hike,” she tweeted that “Chair Powell’s Fed would throw millions of Americans out of work – and I fear he’s already on the path to doing so.”
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New York AG Sues Trump For $250 Million – New York Attorney General Letitia James said that the former president, his children, and his corporation “used more than 200 false asset valuations over a ten year period.” She argues that this allowed the Trump Organization to obtain loans at more favorable rates than it really deserved. Aside from seeking $250 million, the state Attorney General wants to prohibit Trump from leading any business in New York. Adding to the former president’s problems, a federal appeals court ruled last night that the Department of Justice can review documents seized from Trump’s house for possible criminal charges.
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Markets Decline Sharply After Rate Hike – Now that the federal funds rate is between 3% and 3.25%, investors are worrying about the impact on growth stocks. The benchmark policy rate is at its highest level since 2008, and stocks plummeted following the Fed’s announcement. The Dow dropped more than 522 points, or 1.7%, and the NASDAQ composite lost almost 205 points, or 1.79%. Both declines came late in the trading day.
HOT SPOTS: What’s Going on in Geopolitics
- Saudis Help Broker Deal To Free American Fighters – Two Americans who fought for Ukraine but were captured and sentenced to death are heading home after a prisoner exchange. Alexander Drueke and Andy Huynh, as well as other foreign fighters from the UK, Morocco, Sweden, and Croatia, were traded for Russian prisoners. The men are in their respective countries’ embassies in Saudi Arabia before they head home.
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China Going Soft? – The People’s Republic of China notably toned down its rhetoric about Taiwan even after American and Canadian ships sailed through the Strait of Taiwan. The government’s spokesperson for Taiwan said that the People’s Republic was “willing to strive for the prospect of peaceful reunification with the greatest sincerity and utmost efforts.” It was an interesting response to a question about the willingness to use force and seems to be a deliberate attempt to reduce tensions.
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Biden Slams Russia At UN – President Joe Biden blasted Russia’s invasion of Ukraine in a speech at the United Nations, accusing President Vladimir Putin of wanting to wipe out Ukrainian nationhood. “This war is about extinguishing Ukraine’s right to exist as a state, plain and simple, and Ukraine’s right to exist as a people,” President Biden said. He went on to say that this should make “your blood run cold.”
CUTTING EDGE: What‘s Happening In Tech
- Astronauts Arrive Safely At Space Station – American Frank Rubio and two cosmonauts safely arrived at the International Space Station yesterday. The ISS now has 10 residents. The partnership between NASA and its Russian counterpart Roscosmos is coming to an end so this may be one of the last joint missions. Russia intends to build its own space station.
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Musk Promises “Ecological Paradise” – Tesla (TSLA) is expanding its “gigafactory” in Texas by an estimated 500,000 square-feet. However, Elon Musk tweeted that there is more to come. “Ecological paradise plans from south portion of Giga Texas to river look great, however we must first get the factory on its feet,” he tweeted. It never ceases to amaze how Musk announces these grand plans via the company he’s trying desperately not to buy.
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Spotify Throws Down The Gauntlet To Audible – Amazon’s (AMZN) Audible audiobook service is now a standard part of many Americans’ lives. But Spotify (SPOT) thinks it can take on the giant and has launched its own audiobook service. Unfortunately, it isn’t included in your monthly subscription fee – you pay for each book independently.
FOR YOUR CONSIDERATION
So what causes traders to lose everything?
Is it because of their win rates? Entry and exit points? Or is it the tickers they play?
Nope.
None of these will necessarily wipe out your account.
Many traders are in a panic because of the Federal Reserve’s moves on interest rates. Take a deep breath before acting – the consequences could be massive.
Instead, take a moment and read some wisdom from Your Trading Coach Chris Hood about how not to blow up your account.
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