What to Expect After Powell's 75 bps Hike

Jun 19, 2022 | How can we Swing Trade in a high interest rate environment?

Highest Rate Hike in 28 Years

This week, the Federal Reserve raised its federal fund's rate by 0.75%, the largest rate hike increase in nearly 30 years. This was the major outcome of a 2-day long meeting that concluded on Wednesday, as the Fed intensifies its attempts to slow down inflation.

Federal Reserve Chairman Powell was quoted as saying “We at the Fed understand the hardship that high inflation is causing, we reiterate we are strongly committed to bringing inflation down, and we’re moving expeditiously to do so.”

This latest move by the Fed is only one part of a rate hiking cycle aimed to stop inflation while trying to divert sending the economy into a recession. As the rate hikes continue to increase, so does the likelihood of a future recession. And, as we reported in last week’s newsletter, as recession talks intensify, consumer sentiment continues to drop. 

 

What the Latest Rate Hike Could Mean for You

At the core of the Fed's rate-hiking strategy lives a desire for you, the consumer, to spend less. As the cost of just about everything continues to go up, the Fed is trying to fight that with higher interest rates to reduce demand from consumers.

The latest increase in the federal funds rate directly impacts how banks borrow and lend to each other. Although that’s not the rate that consumers pay, this latest move by the Fed will certainly impact the borrowing and savings rates consumers deal with every day. We expect it will become progressively more expensive to borrow money from the bank going forward.

You’re also likely to feel the pain of the latest rate hikes when it comes to paying down debt. Especially costly credit cards and other variable rate debt. As the cost-of-living increases, economists continue to preach the importance of increasing your savings and paying down debt.

Since credit cards have a variable interest rate, there's a direct connection to the Fed's benchmark. Credit card rates currently sit at over 16% on average, significantly higher than nearly any other consumer loan. Experts predict this number to balloon to nearly 20% by the end of the year.

The latest rate increase is also sure to affect your mortgage as well. The interest rate for a 30-year fixed-rate mortgage continues to move upwards, currently sitting at 6.28%.

What it Means:  The Fed outdid themselves this week when they let key interest rates spike to nearly 30-year highs. The Fed thinks the economy is too hot, and they’re doing everything in their power to slow down consumer spending.

A few weeks ago, we received stellar job data, but that was once again a catalyst for the Fed to bump up rates.  Consumers should be preparing themselves for more rate hikes over the coming months. Until the Economy begins to collectively spend less, prices will continue to rise, and the Fed will continue to bump interest rates.

This Week’s Picks

EDR (Endeavor)

August 14, 2022

Entry Price:

24.50

Stop Price:

23.35

Target Price:

26.46

Time Frame:

3 Week Hold

EDR has been in a channel pattern over the last few weeks. As it approaches the bottom band, after a some mid-week volatility, look to make enter the trade off the rebound. As noted in KMX, keep a trailing stop loss and close the position quickly should the market turn.

KMX (Carmax)

August 14, 2022

Entry Price:

101.85

Stop Price:

96.45

Target Price:

109.15

Time Frame:

4 Week Hold

KMX, along with most of the market, has been rebounding off June lows. We've seen strong momentum and a crossover of our long-term MAs. Watch for a market pull-back and keep a trailing stop loss. We're riding strong tailwinds, so get in and out quickly

Apple TV: Exclusive Streamer of the MLS

We’ve talked extensively about the battle of the streaming wars, and how consumers have had to pick and chose from the numerous streaming options available these days. Streaming platforms have continued to look for key differentiators to separate themselves from the competition.

This week, Apple made headlines when they announced a 10-year partnership to be the exclusive streaming platform for Major League Soccer. Regardless of how you may feel about American soccer, this should be a big revenue generator for Apple going forward.

The new 10-year deal is set to begin in 2023 and the partnership will allow fans to watch MLS, Leagues Cup, and select MLS Next Pro matches through the Apple TV app. 

MLS on Apple

The new service will provide live games, replays, extensive analysis, and new MLS-specific programming. They are essentially launching the MLS Network. There will be different packages and options that allow you to watch all the games, but unlike other sports packages, no regional blackouts will be applied.

Apple’s Senior VP of Services was extremely bullish during the announcement when he noted “For the first time in the history of sports, fans will be able to access all available content from a major professional sports league all in one place… it’s a dream come true for MLS fans, soccer fans, and anyone who loves sports.

What it Means: With so many streaming platforms out there, providers have become more strategic with how they will differentiate themselves from competitors. Last year, Apple became the go-to provider for MLB Friday Night Baseball.

Now, they’ve made history by becoming the sole platform for anything and everything MLS-related. Apple is also rumored to be heavily interested in gaining the exclusive rights to NFL Sunday Ticket. It seems clear that Apple has plans to use live sports as another avenue for future growth for the behemoth.

Jay Z Gives Back to NY with the Bitcoin Academy

We're all aware that Jay-Z is the true definition of a mogul. While originally gaining fame through music, he has now invested in over 100 different companies ranging from videogames to music, to salads.

Now Jay-Z is exploring a new venture with Jack Dorsey, former Twitter CEO and current CEO of Square / Block. The native Brooklyn rapper is teaming with Dorsey to teach residents of the Marcy Houses public housing projects about crypto. The duo aims to fund a new financial literacy program called: The Bitcoin Academy.

The program will target residents in Brooklyn, where Jay-Z grew up. This program will offer free classes to residents as well as devices and data plans. It will be aimed at children ages 5-17. They will also launch a partner program known as “Crypto Kids Camp”.

Their Mission Statement notes: This program aims to provide education, empower the community with knowledge, and get rid of some of the barriers so that residents can learn more about Bitcoin and finance in general.

What it Means: Jay-Z is clearly bullish on the long-term benefits of Bitcoin, as he attempts to educate and make crypto more widely available. We’ve talked about his partner, Jack Dorsey, extensively in the past. Now that he longer runs Twitter, Dorsey remains solely focused on the future of Bitcoin. We’ll be watching to see if the program grows beyond Brooklyn NY.

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Weekly Watchlists

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Weekly Review

Market Performance- Week of 08.14.2022

Recent Winners

CF (CF Industries)

CF (CF Industries)

Entry Price:

87.40

August 14, 2022

Price at High:

105.10

Return for Members:

16.84%

Timeline:

4 Week Hold

CF is a manufacturer of fertilizer and other farming products. Similar to our thesis on oil last week, we're expecting more global tensions to arise over the coming months. Although not directly related, CF should appreciate if adverse events occur. Technically speaking, we're seeing a bounce off the 180MA. However, there is negative momentum so be careful with entering too early.

MRNA (Moderna)

MRNA (Moderna)

Entry Price:

168.85

August 7, 2022

Price at High:

197.33

Return for Members:

16.86%

Timeline:

1 Week Hold

We're starting to see a reversal take place. Watching the 50 day moving average cross over the 100 day. Saw some weakness to close this week, so wait for upward momentum before jumping in.

X (US Steel)

X (US Steel)

Entry Price:

20.15

July 31, 2022

Price at High:

23.75

Return for Members:

17.86%

Timeline:

1 Week Hold

Stark momentum shift from the lows on this one. Tracking our moving averages on the 2-hour time chart. Looking for an early entry and quick trade.

Recent Watchlist Winners

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