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SPY: Stocks May See A Massive Rally After The Fed Meeting

May 01, 2022 4:27 AM ETSPDR® S&P 500 ETF Trust (SPY)VIX138 Comments

Summary

  • Stocks have sold off hard heading into the FOMC meeting.
  • However, the FOMC meeting has typically acted as a de-risking event since late 2021.
  • Any rally is likely not to be long-lasting as the macro force will be too much to overcome.
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The FOMC announcement and press conference will be on Wednesday, May 4. Unless the Fed announces something entirely unexpected, it is likely to serve as a de-risking event for the stock market and the S&P 500 and S&P

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This article was written by

Mott Capital Management profile picture
35.54K Followers

I am Michael Kramer, the founder of Mott Capital Management and creator of Reading The Markets, an SA Marketplace service. I focus on long-only macro themes and trends, look for long-term thematic growth investments, and use options data to find unusual activity.

I use my over 25 years of experience as a buy-side trader, analyst, and portfolio manager, to explain the twists and turns of the stock market and where it may be heading next. Additionally, I use data from top vendors to formulate my analysis, including sell-side analyst estimates and research, newsfeeds, in-depth options data, and gamma levels. 

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer's views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer's analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer's statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.

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Comments (138)

Abel+ profile picture
The upcoming wealth tax will certainly be the cherry on the cake. Fortunately, there are lawful ways to be immune from any wealth theft...
AlphaCalifornia profile picture
Thanks for this exposition on markets during a period of Fed focus.

Monetary policy is a symptom of market dynamics not a cause. That's why the Fed seems always to be playing catch up, as now. Low and middle- income persons are getting walloped. Now the Gods of velocity get off their ample posteriors.

Having written this, several Fed chieftains have saved our economic bacon. Paul Volker, appointed by Jimmy Carter, and his minions raised rates monstrously in the early 80s. Bitter medicine for a virulent infection. Gold went to an evil $666/oz; astronomic for the time (crosses himself).

In the dark winter of 1979-80 6 month treasuries yielded 16.5%; exempt from state tax; interest paid on purchase.

Current hysteria over interest rates is comical. A member of my family had a 30- year fixed mortgage approved in the last few days at 5% fixed. That's 'cheep'.

Equity market and real asset investors have gotten wealthier in recent times, and are enjoying their affluence. I believe this is a primary cause of inflation.

Total tax revenue in California spiked in 2021 symptomatic of higher affluence:

fred.stlouisfed.org/...

In California there's no preferential treatment of long-term capital gains nor qualified dividends.

We make our money in bear markets. It doesn't seem so.

I owe much of my financial freedom to the market swoon at the end of the dark days of George W. and the Obama rally.

Thanks, Mr Bush. You helped create a secular bear market and a tasty buying opportunity for me.

Thanks for your strength of will Barack. You were one of the driving forces behind a tripling of the S + P 500 (source: Morningstar "Growth of $10,000" VFIAX, Vanguard S + P 500 Index Fund Admiral).

If you have investable assets, dollar-cost average into a cheap broad market index investment product while the elevator boys are selling. If you don't have resources to commit stay the course.

Always reinvest quarterly dividends to put leveraging to work and reduce basis during swoons.

Here's the broad market from 1896. Note logarithmic vertical scale which compresses the graph, necessary because gains have been in the 1000s of percent. Note also the evolution of indexes. There were periods of grinding decline such as the 1970s:

static.seekingalpha.com/...

The trend is compelling though there's no guarantee it will continue. Have courage.

Respond to inflationary spikes by eliminating expenditures you know damn well you can do without. During the inflationary early 80s I took the train to work and packed lunch.

The above are personal observations by a wine-sipping, slightly cracked person, not advice nor forecasting. May you find your own path to financial freedom.

Tonight I'm having white wine; a crisp, astringently dry, fruity Pinot Blanc from Mirassou. There's risk as this wine's been in the cellar for decades. It has oxidized, as evinced by amber color. Will it be a bitter disappointment, like a protracted period of poor market performance?
J
@AlphaCalifornia We are cleaning up on this bear market. So much $$$ floating around and the bulls keep buying the dippers as expected.

This has been a very lucrative 22' for those willing to play the ups and downs. Small fortunes can be made in one week lately if nimble.

Pinot Blanc et Noir for me. Back to Alsace soon with friends. jm
AlphaCalifornia profile picture
@JohnnyM Congratulations.

Thanks for your short-term plays.

The market is an accretion machine that transfers wealth from traders and options gamblers to decades-long index holders. You're providing financial security so I can have a treat occasionally when I'm elderly, if you get my meaning.

Keep trading. The 'house' always wins in the end, as in Vegas.

Don't forget Sancerre, the queen of bone-dry whites. I love the way it clears my palette like a painter covering a canvas with neutral base coat before making a rendering.

I'm tired of Pinot Noir. There's been a river of it.

All praises to Zinfandel, the only varietal that started in California. The rest started from vine cuttings immigrants brought with. Big bad immigrants!

I'll stick with indexing until my cold dead fingers are taken from this dirty keyboard.

Bonne chance, dear fellow.
a
SPOT ON! great job!
l
So now we have had a bear squeeze that was built up by talk of 75 basis point hikes. With Powell's reassurance of 50bp hikes from now on, there is a chance for something more bullish going forward.

There are a ton of short/puts still in the market as most are still short. My take is that we keep going up until around options expiration somewhere around the 18th-20th of this month as these must be eliminated by then. Huge gamma.

This goes with the authors' take that these rallies after a Fed meeting only go on for a week or three, and then the minutes come out...

JMHO.
j
@labradoodle That one didn't age well..
l
@jarbis1

No Kidding! I guess I'd better stop trying to out guess this market.

At least my energy portfolio is holding up. That's been a comfort in these troubled times
S
Good call my Bear friend
J
Bingo! Dead on target today as we rode to 429 and ready ourselves for the slow bleed after the next short rise on Thursday.

The SPY has been great to play while Wall Street takes her cues and runs with them for great gains.

Powell's smoke and mirrors show was what everyone wanted to hear. Unfortunately, this game has consequences that do not benefit the USA or markets long term as inflation chews up more than our paychecks each week. Needed rate hikes will hurt eventually. Equity selloffs will be the norm later.
u
You were right, again! Keep up good work!
ESG Investor profile picture
wow, you called that one!
g
@Mott Capital Management

Powell is the wealthiest Fed Chair in history.
Powell doesn't understand why inflation is painful for the middle class.
ChrisForte profile picture
Wow, you nailed it. Huge rally late in the day (Wednesday). Nice call!
r
@ChrisForte Question is now what? Drop, or more green to go?
Illuminati Investments profile picture
Dead on. Powell adding more kindling to the fire.
k
Good call! Thx!
M
All the Business News channels have been telegraphing for days of this massive equity rally after the Fed Meeting, May 4, 2022....WOW !

An oversold bounce higher.....BUY QQQs and SPY calls !
Illuminati Investments profile picture
Stocks May See A Massive Decline After The Fed Meeting
There, now at least one of us will be right...
S
A crash never happens when everyone is expecting it 😃

March-2020 lows will surely happen again but for a totally different reason that is not foreseen by any of the analysts or brokerages. Black swan events can never be forecasted.

Stick to a long term investing strategy and dollar cost average into dips such as these. No one can effectively call either a ceiling or a floor.

GLTA!
T
For anyone who wants to read the comments. It’s full of bears (rightfully so) who think we crash another 20-30%. Which is understandable as during the bull rally people were calling absurd bull targets for the S&P.
Everyone seems to think that history from dot com will precisely repeat itself, which has turned 80% of investors bearish and caused a huge overcrowded trade in pits and short sellers. This will likely result in a 5-6% rally before the next leg down (as soon as you close your put, it will drop again).
S
@Tdog88 I think people are more afraid of 1974 through 1983 repeating itself...
T
For the historical S&P PE, what is the average if you take out the insane outliers like Tesla, etc. I think we bottom
at $380 this year sometime in late May. Market starts rallying long before headwinds clear up.
Illuminati Investments profile picture
@Tdog88 I dunno, some of the market leaders like $AAPL, $AMZN, and $MSFT are trading at pretty lofty P/E ratios as well.
s
So its going up and going back down.
Illuminati Investments profile picture
@stevewin Yes. Unless it doesn't.
Sincerely, EW Analyst
R
Fed is between rock and a hard place now. If the rate hike is higher than 50bp then the market will tank on cost of capital reval if it's at 50bp or lower that's even worse. Most likely see a brief intraday rally and then sell off bc market fearing Fed isn't doing enough.
T
@Raezin the market is not going to call 50bps not enough. It’s more than enough to make a soft landing here and slowly drive down inflation while not crashing the market
R
@Tdog88 it’s debatable that’s the perception when 25 bp was the consensus.
m
On what basis the author is mentioning that the stock will rise. What if it falls the next day.
S
@micky2100 did you not bother to read the article? He articulate pretty clearly why he thinks it will rise, then fall.
S
@micky2100 on the basis that he lays out in the article.
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