The U.S. stock market rose sequentially as traders tried to close puts in the last hour of the trading session, which also sent volatility down.
The delta hedge value of the options is still positive, meaning that traders are getting to know the puts on the S&P 500.
A negative delta hedge between the S&P 500 Index Fund and the Nasdaq 100 Index Fund means that traders are buying puts and selling calls on these index funds.
In reality, however, the path given by the Fed for monetary policy in 2023 & 2024 is above the neutral rate. This policy is even tougher than my most hawkish expectations (for Fed policy).
Fed Chairman Powell's press conference sounded like the Fed's goal is to tighten financial conditions, and tighter financial conditions would point to lower P/E ratios and stock prices.
When the financial environment tightens, the stock market falls. The U.S. stock market is already in a tighter financial situation now than it was in 2018; companies' share prices will fall as the financial crunch takes hold.
If you think the Fed is saying nothing, you've got it all wrong. The Fed is suggesting they want to raise the U.S. benchmark interest rate to 2.8% in 2023 and 2024, a level above the neutral rate.
The Federal Reserve is telling people they want to tighten financial conditions. Remember the phrase, don't fight the Fed: the opposite also holds true.
In addition, the current rate hike cycle differs from previous ones in that growth is currently lacking momentum: the U.S. economy is not yet in the early or beginning stages of expansion; the expansion of the U.S. economy is slowing sharply. The Atlanta Fed implied that the U.S. economy grew at 1.2% in the first quarter.
S&P 500 Index Fund (SPY)
S&P 500 funds remain in a downtrend, and the S&P 500 rally over the past two days looks similar to the rally on Jan. 28-29, and the rally on Feb. 24-25.
I don't think there's much else to explain at this point, as today is expiration day and some of the puts are closed.
U.S. Treasury Yield
The 2-year U.S. Treasury yield rose to 1.94% at today's close. If the Fed raises its target rate for next year to 2.8%, the 2-year U.S. Treasury yield would need to reach well above 2.8% to do so. I think the 2-year U.S. Treasury yield could rise to 2.2% in the near term.
In addition, the yield curve shows the 7-year U.S. Treasury yield is higher than the 10-year U.S. Treasury yield, and I think the 5-year U.S. Treasury yield will soon be higher than the 10-year as well.
Klaus.Zhu
Global market host and chief analyst of Piggy talk show financial program
He mainly studies foreign exchange, precious metals, stock index futures and other products, and specializes in fundamental and technical analysis. Based on years of experience in financial derivatives trading, Klaus believes that the financial market is a field full of unknowns at all times, and investors should study investment strategies while continuously strengthening their own trading psychology and risk control awareness. Klaus holds a bachelor's degree in finance and has many years of experience working in retail foreign exchange, where his market analysis and commentary are often accepted, and holds a Chinese securities license, a fund license and five CPA exams. He is able to provide clients with logical, professional and timely analysis at all times.
