Are Future Rate Hikes Already Priced In?

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Alex Partida

Oct 06th 2022  .  3 min read

The market opens within the recent range

When the opening bell for the cash session sounded, the S&P found itself still trading within the range of 3,780. Right out the gate, the market quickly raced higher towards 3,800. This psychological level provided enough resistance to send the market tumbling lower. The initial pop and drop was the most aggressive action seen for a while. 

The morning dive sent the stock market trading below 3,780, reaching a morning low of 3,760. Just like the previous few breaks of the zone, the magnet of liquidity brought the market higher back towards it.

The majority of the remainder in the cash session was very choppy, volatile, and sideways. The reason for such price action can be attributed to the chart’s liquidity pool found around this area.

Liquidity pool neutralizes the market

The stock market continues to see indecision from a micro perspective. On the macro, there is still bearish sentiment regardless of the ensuing relief rally. The stock market has the chance to trade back above the daily mean (21-day Simple Moving Average) but, to this point, has failed.

In the big picture, it will need to trade above and hold the daily mean for the market to prove itself to the upside structurally. When Looking at the stock market through a fundamental lens, there are still many bearish indications.

The most significant underlying factors contributing to the bear market of 2022 are inflation, interest rates, and the overall economy of the United States. The gauge for economic growth, or in this year’s case, a financial reduction, can be broken down into three key indicators: employment numbers, consumer spending, and mortgage rates. 

Adding all of this together creates an excellent opportunity for the big players on Wall Street to get positioned for the next significant directional move in the market. Doing so takes longer than a couple of hours, days, and sometimes weeks. The time at liquidity is spent chopping up retail while smart money sizes into their next position. 

Chicago Fed President Charles Evans shakes up the market

Chicago Federal Reserve (Fed) President Charles Evans spoke on the future of rate hikes, spooking the markets. Evans said, “rate hikes of 125 basis points are expected over the next two meetings”. This is an aggressive increase over previous rate hikes and may push the markets lower, pricing in this hawkish news

When the term “priced in” is used in relation to the markets, it means the market has already reacted to the news before the event occurs. In this case, the market may move lower into the next Fed meeting in anticipation of the announcement rather than sell-off on the day of the statement. 

The news quickly rippled through the market, sending all indices falling to the previous low of the day.  Price action hovered around this level for the remainder for todays cash session. The close of 3,751 is significant as there was not enough buying to bring it back before the bell rang to end the day.

The market now awaits nonfarm payroll (NFP) to be reported Friday at 8:30 a.m. Eastern. 

Market close sees red

At the close, both the Nasdaq and the S&P 500 futures were negative. The S&P 500 futures closed down 1.01%, losing 38 points, while the Nasdaq futures closed down 0.68%, a loss of 79 points. The Dow Jones followed along, declining 361 points, losing 1.19%.

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