#236: Hawkish Fed & Reactions

Massive thank you & welcome to 25 new wise apes joining the community since our last post!

In this email:

• Why the sell off since Wednesday?

• Which sectors have remained resilient?

• What now?

What’s happened since Wednesday?

Outlook is “pretty bright for our economy”, yet market is tanking as he speaks at 2:30pm on Wednesday…

What’s going on?

• The Fed cut interest rates by another 0.25% on Wednesday

• The main story of that day, though, was the Fed's outlook for interest rates in 2025

  • The Summary of Economic Projections (released every other Fed meeting) revealed that the forecast for core inflation was revised higher from 2.2% to 2.5%

  • The median FOMC voting member has 0.50% worth of rate cuts for the next year, down from four projected in September

Which sectors have remained resilient?

Above is the past 5 days’ change in the top 11 sector ETFs

Key personal thoughts:

• Of course, Utilities, being a defensive sector by nature, has been one of the more resilient sectors in response to Fed on Wednesday, but Technology (XLK) is showing strong resilience

• Bank stocks in Q3 have shown largely exceeded expectations, but individual tickers within the makeup of XLF (Financials) will react very differently

  • i.e. JPM's down ~2% since Wednesday, as opposed for ~4.5% for Bank of America (as of writing)

What now…?

Thinking long term:

• The macro backdrop is still that the US economy is resilient

• Certain sectors still have more room to outperform (should Trump's trace policy continues in his second term)

Meaning:

• A selloff like this is an amazing buying opportunity — keeping head down, dollar cost averaging

• Fed’s announcement is said and done, market will now slowly move onto a new catalyst (good or bad) to latch on to

  • It’s important not to solely focus on the bearish sentiment stemming from the hawkish Fed announcement but to quickly adapt to any positive developments or news that reduces uncertainty.

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