What a December Rate Hike Means For Markets

Here We Go Again.

Just six weeks after pulling it off the table, this week the Fed put a December rate hike back on the table.

That’s going to cause volatility in stocks and bonds, but we believe that volatility will create an opportunity for the advisor who can quickly, accurately and correctly communicate what the Fed and economic data means to their clients and prospects.

We will make sure our subscribers have the knowledge they need to do exactly that – finish 2015 strong with more clients, more referrals, and more AUM. 

Over the past few months, our fundamentals based research allowed us to identify what has really been driving markets. And by consistently and clearly communicating that to subscribers, we’ve helped them quickly and accurately answer that question of “What’s Next for US Markets.”

For example, back in August we identified that the core drivers of stocks were Chinese growth concerns and whether the Fed would raise rates, and that discovery helped us get this market “right” since then:

  • In early August, during the height of the summer doldrums, we cautioned that the surprise yuan devaluation represented a threat to markets.
  • In early September we warned that if the Fed didn’t raise rates at the September meeting stocks would drop.
  • In late September we notified subscribers that the two key leading indicator ETFs we’ve been following had turned positive and broken downtrends, implying the selling had likely exhausted itself.

Our subscribers have been able to use this analysis to answer client questions about the market for months, and that’s helped them close new prospects and get more AUM.

Many of our subscribers, who are FAs from wire house firms, RIA’s, and portfolio managers, have told us that they consider The Sevens Report their “cheat sheet to the trading day” as after reading the daily morning note, they are easily able to field client questions (without having to call them back) and impress prospects because The Sevens Report gives them everything they need to know about the markets in 7 minutes or less each morning.

Each trading day at 7 AM EST the Sevens Report provides value add analysis that tells you:

1) Where the market is going,

2) What the major risks are to client portfolios and

3) What specific tactical strategies and ETFs can outperform over the coming weeks and months.

And, our retention rate is over 90% because we accomplish those goals for subscribers every single day, so they can focus on building their books and getting more AUM.

With a December rate hike back in play, economic data is once again very important, because the data will decide whether there is a rate hike or not.

So, I make sure we provide plain English analysis with actionable takeaways from the economic data – and a perfect example of that is yesterday’s GDP report – which was actually strong and caused a major sell off and potential trend change in bonds and certain sectors of the stock market.

Why the GDP Report Was Positive for Stocks

I read headlines from Marketwatch.com, Business Insider, and CNBC yesterday that made implied the Q3 GDP report was a negative for the economy and the market.

It was the exact opposite.

Changes in inventory levels and net exports put artificial pressure on headline GDP, but more importantly the major measures of consumer spending in Q3 remain resilient:

  • PCE (Personal Consumer Expenditures, which is just gross consumer spending) rose 3.2% compared to 3.6% in Q2.
  • The best measure of true GDP, Final Sales of Domestic Product (which is GDP less inventories) rose 3.0%, not too far from Q2’s 3.9%.
  • Final Sales to Domestic Purchasers (which measures the amount of “stuff” bought regardless of where it was manufactured) rose 2.9% compared to 3.7% in Q2.

Bottom line, looking past the headline this GDP report confirms the economy and the consumer remained resilient in Q3, and that is a positive for stocks.

Two Actionable Takeaways from the Fed and GDP Report:

There are two key, actionable takeaways from this week’s economic data.”

First, the macro news is anecdotally positive for US consumer-oriented sectors.

That matters because it further validates the thesis behind the US consumer centric ETFs we have listed in our “7 Best Ideas” tactical investment section of The Sevens Report.  We continue to believe that select consumer oriented ETFs can outperform for the rest of 2015.

Second, the data and Fed was negative for bonds.

It took a day, but bonds more appropriately reacted to the hawkish FOMC statement with a nudge by the Q3 GDP report. And, while that report didn’t by itself increase the chances of a hike in December, it certainly solidified December as a viable option. That was represented by the fact that according the Fed Fund Futures, December is now slightly more than a 50% probability.

The 30 year Treasury dropped 1.4% yesterday and the 10-year yield shot through resistance at 2.10% to close just under a key downtrend resistance at 2.20%.

Importantly, the bond market is still not even close to pricing in a December rate hike, as it would take a 2-year yield above 0.90%, a 10-year yield around 2.50% and a 30-year yield above 3.25% to reflect the market pricing in an imminent rate hike, and we’re a long way from those levels.

But, if bonds trade to those levels over the next two months that will result in significant gains for the inverse bond ETFs (which are also listed in our “7 Best Ideas” section of the paid Report), and be a negative for income oriented sectors.

Bottom line, after a month of quiet, economic data and the Fed are once again a major influence on the markets, and with just two months left in the year, understanding what’s happening in the economy and with the Fed in real time is very important.

There are now four key reports that will decide whether the Fed hikes rates in December:

  • October Jobs Report
  • October Retail Sales Report
  • November Jobs Report
  • November Retail Sales Report

Paid subscribers know that they will have independent, plain English analysis of these critical releases and any Fed speak, each trading day at 7 AM.

And, they know that with the October jobs report looming next Friday, they will have the preview and analysis they need to position clients accordingly.

In Thursday’s paid edition of The Sevens Report we presented 5 ETFs to paid subscribers that will outperform if the economic data continues to be solid, interest rates continue to rise, and the Fed hikes rates just 7 weeks from today on December 16th.

That is how we turn macro analysis into actionable, tactical investment strategies for our subscribers.

As a courtesy, I am extending a limited time, special offer to new subscribers of our daily report that we call our “2 Week Grace Period.”

If you subscribe to The Sevens Report today, and after the first two weeks you are not completely satisfied, we will refund your first quarterly payment, in full, no questions asked.

Click this link to start your quarterly subscription, ensure you have the timely economic analysis you need and learn which tactical ETFs can outperform in a rising rate environment.

Tactical Investments That Can Help You Outperform into Year End

Our investment strategy is simple:  We watch macro indicators to identify tactical opportunities across asset classes that can help our subscribers outperform.

We don’t call tops and bottoms, as we’ve learned in our years in this business that’s a fool’s errand.  Instead, we focus on catching the big trend changes that can offer months of outperformance.  And, we’ve done well so far in our 3+ years in business, which is one reason our retention rate is still over 90%. 

And, our subscribers have told us how our focus on medium term, tactical opportunities and risks has helped them outperform for clients and grow their books of business. 

And, through this recent market volatility, we continue to get strong feedback that our report is:

1) Providing value
2) Helping our clients outperform markets
3) Helping them build their business 

Thanks for your continued insight; it has saved my clients over $2M USD this year… Keep up the great work!” – FA from a Bulge Bracket Firm.

“Let me know if there is anything else that you need from us. Thanks again for everything. I really enjoy the Report – it is helping me grow my business and stay on top of things.” –  Independent RIA.

“Great service from a great company!!” – FA from a Bulge Bracket Firm.

“Great report. You’ve become invaluable to me, thanks for everything…!  –  FA from a Bulge Bracket Firm”

Subscriptions start at just $65 per month, billed quarterly, and with the option to cancel any time prior to the beginning of the next quarter, there’s simply no reason why you shouldn’t subscribe to The 7:00’s Report right now.

Begin your subscription to The 7:00’s Report right now by clicking this link and being redirected to our secure order form.

Finally, everything in business is a trade-off between capital and returns.

So, if you commit to an annual subscription, you get one month free, a savings of $65 dollars.  To sign up for an annual subscription, simply click here.

Best,
Tom

Tom Essaye,
Editor of The 7:00’s Report

Leave a Reply