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Doomsday Indicator or Rare Opportunity

May 4, 2021

By: Frank Kaberna

Talking heads can share many attributes whether they represent politics, finance, or sports. One mutual trait that’s been particularly relevant lately is overdramatizing events. “That team would NEVER draft that player,” fictional NFL commentator says minutes before said team drafts said player.

The Fed and interest rate analysts currently find themselves in a similar dance. After the US Federal Reserve announced no change in rates last week, many took to social media to hyperbolize and rant about how the Fed will never move rates off 0% and how this will cause an inevitable stock market crash.

The Same Old Song

Those who traded in the aftermath of 2008’s crash might be feeling some déjà vu these days relative to the will-they-or-won’t-they mentality with the Fed and hiking rates off 0%. As the equity market put in new high after new high, analysts and opinionated social media users alike projected that the Fed Funds Rate would never come off 0% again. And then the Fed hiked rates several times between 2015 and 2018.*

SPX \ S&P 500 Index

Source: dxFeed Index Services (https://indexit.dxfeed.com)


A New Way to Trade

Could rates stay near 0% for months and even years? Of course! Will they stay there forever? Though it’s possible, there is no historical precedent. Ever since the Fed’s inception, cutting rates has at some point been followed by hiking them. Small 2YR Yield futures currently reflect about 0.175% in short-term interest rates. Buying S2Y futures would demonstrate a potential reversion to the historical norm, while selling them contends the opposite.

S2Y \ Small 2YR Yield Index

0504_smalls2.png

Source: dxFeed Index Services (https://indexit.dxfeed.com)

 

The Fed’s mission is not to burn down the house, as some talking heads might project, but rather to guide financial markets along in a way that usually has commentators saying, “Oh yeah, this must be the place.”

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Save Every Time You Trade the Smalls

The Small Exchange has also created a limited number of subscriptions for a one-time payment of $100 that give traders a lifetime of reduced exchange and market data fees when trading the Smalls.

For more information on the Small Exchange’s products and subscription service, visit smallexchange.com. And be sure to check out my new show on tastytrade, Small Stakes, where Pete Mulmat and I will show viewers how to navigate Small Exchange products every Monday-Friday and always on demand.

If you’d like to find out where to trade the Smalls products check out the list of brokers that offer their products, or tastytrade’s preferred broker tastyworks.


*Data from https://www.federalreserve.gov/

© 2021 Small Exchange, Inc. All rights reserved. Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information in this advertisement is current as of the date noted, is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading futures involves the risk of loss, including the possibility of loss greater than your initial investment.


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