The Federal Reserve Board has announced that it will begin a campaign of interest rate cuts starting next week. However, the stock market is struggling with how to start. I believe that a 0.25 percentage point cut is the first step, but a 0.5 percentage point cut (which could confuse the market) has been strongly floated recently. I believe that the market will sell off either way, either from disappointment if only a 0.5 percentage point cut is made, or from a panic reaction from the severity of the 0.5 percentage point. I would like to buy insurance with the high beta Invesco QQQ Trust for this historic Fed meeting. Recent volatility has stirred investor sentiment. The Nasdaq 100 fell 6% last week and is up nearly 5% this week, but this is not a normal market situation. Driven by investor-favored AI themes, the QQQ has risen more than 15% year to date. Profit taking since early August has called into question the future direction of technology amid uncertainty surrounding the presidential election, which is less than eight weeks away. QQQ YTD Mountain Invesco QQQ Trust, YTD CBOE Volatility Index is still elevated but showing no signs of panic at this time. VIX is just below 20 and well below recent high of 65. Trading CME Fedwatch tool is slightly in favor of a 25 basis point rate cut but oddly closer to a coin toss than last week. I say this is odd as Core CPI rose 3.2% year over year and 0.3% on a monthly basis, beating expectations. QQQ 9/27/2024 Bought $470 puts for $6.25. This was done when QQQ was trading at around $473. Cost per put option is $625. I used a short term (2 week) expiry as this insurance is expensive and I expect the Fed reaction to materialize within this time frame. The risk of this trade is defined by the amount of premium paid for the put option, and QQQ must fall below $463.75 for this put option to profit. Disclosure: (Long this put, Long QQQ) All opinions expressed by CNBC Pro contributors are solely the opinions of the contributor and do not necessarily reflect the opinions of CNBC, NBC UNIVERSAL, its parent or affiliated companies, and may have been previously distributed by the contributor on television, radio, the Internet or other mediums. The above content is subject to our Terms of Use and Privacy Policy. This content is provided for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to purchase any securities or other financial assets. The content is general in nature and does not reflect any individual’s unique circumstances. The above content may not be suitable for your particular situation. You should strongly consider seeking advice from your own financial or investment advisor before making any financial decisions. Click here for the full disclaimer.
Hedge markets and tech ahead of uncertain Fed decision next week
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