Rate hike expectations are accelerating

7 sty 2022

I did not post a gamma update, because not much changed and that is pretty perplexing in itself. In general the markets do not want to stay in negative gamma territory and they typically do not get pinned at "put barriers". Or to think about it from another angle: Volatility does not like to move sideways on an elevated level. It's natural tendency is to shoot up and regress back. Or think about it from that perspective: Nobody holds a put for fun, since it is expensive. If markets go sideways you better close your position. Overall, the situation is not stable and my guess is that we will see a resolve in the coming days.

The situation gets more perplexing if you look at the above chart, which maps the April fed funds future contract. Right now this contract is pricing in a rate hike and that means a rate hike in March since there is no April meeting.

I would only want to hold a growth (tech) portfolio going into March if I truly had lots of confidence in the Fed, meaning I trust them to combat inflation while at the same time keeping the economy intact. Is this trust justified given their catastrophic misjudgement of inflation only a couple weeks back? Hm..

But anyways. I am just trying to understand why the markets, especially growth stocks are holding up so well and I am open to fresh perspectives. Bring it on :).