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Doomsday Indicator or Rare Opportunity?

by Frank Kaberna| Tips & Strategies

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.

Gain exposure to popular markets with standardized tick values and expiration dates on the Small Exchange. See why the smalls are making a big splash. >>

S2Y \ Small 2YR Yield Index

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.”

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

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© 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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About Frank Kaberna

Frank Kaberna is the head content strategist at the Small Exchange. He produces everything from brochures to videos that inform on the Small Exchange’s products. After earning a mathematics degree from the University of Michigan, Frank traded interest rates at the Chicago Board of Trade. He then worked on the tastytrade Network as a content producer and on-air talent before landing at the Small Exchange.

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

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